KEY RATING DRIVERS
The ratings are driven by Ind-Ra’s expectation of support from its ultimate parent, Bajaj Holdings & Investment Limited (BHIL) if required. BHIL holds 39.2% equity in Bajaj Finserv Limited (holding 57.5% equity in BFL) and 31.5% equity in Bajaj Auto Limited (BAL). Along with lending to diverse consumers and small and medium scale enterprise segments, BFL is a dominant and captive financier for BAL, financing a steady 30% of the total sales of two-wheelers in the domestic market. BFL’s auto finance segment is closely integrated with the parent group for planning and execution of its business strategies.
BFL dominates the market in its key loan segments and has an established network of branches and dealer locations. It has a healthy funding mix with 53% in money market borrowings raised at competitive rates. BFL’s adequate capital buffers (end-December 2015; capital adequacy ratio: 19.6%; Tier I ratio: 16.1%) and healthy internal accrual ratio of around 21% support its medium-term growth plans. The company’s robust pre-provision profitability to assets (9MFY16: 6.4% annualised) is supported by a low cost of funds and strong loan yields of around 18%. While the retail and business loan portfolios may see delinquencies in the medium term, the healthy pre-provision profitability should absorb credit shocks even in a stress case situation (gross non-performing assets were 1.3% at end-December 2015).
BFL being a listed entity has strong investor support. Besides, BAL has a robust business profile and is the primary source of dividend for BHIL. The group has strong liquidity in the form of cash and investments to provide funding support to BFL in a contingency. The cash and liquid investments as well as the short-term liquidity that can be generated on a standalone basis by BFL and by the group, provide extraordinary comfort to BFL’s creditors and would remain sufficient in the long run.
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