By Siddharth Goel

India Ratings and Research (Ind-Ra) has assigned Bajaj Finance Limited’s (BFL) additional INR10bn unsecured subordinated-debt an ‘IND AAA’ rating with a Stable Outlook. A list of outstanding ratings is at the end of the commentary.

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 57.3% 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 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-March 2016; capital adequacy ratio: 19.5%; Tier I ratio: 16.1%) and healthy internal accrual ratio of 24% support its medium-term growth plans. The company’s robust pre-provision profitability to assets (FY16: 6.5%) 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 (150-days past due gross non-performing assets were 1.2% at FYE16). 

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. 

To read a detailed rating rationale, please click 
here


RATING SENSITIVITIES

Ind-Ra expects BFL’s ratings to remain at the highest end of the national scale with a Stable Outlook. Rating change, if any, will depend on a significant decline in the ownership or support from BHIL and a significant reduction in BFL’s importance as a key financier to the group’s automotive sales, which is unlikely over the near-to-medium term. Significant deterioration in BFL’s asset quality or its own liquidity worsening could be negative for BFL’s ratings.


COMPANY PROFILE

BFL is a deposit taking non-banking finance company and is the finance lending arm of the Bajaj Finserv Group. It is a diversified finance company with exposure in various finance segments such as auto loans, consumer durables loans, personal loans, home loans, loan against property, unsecured loans to small and medium enterprises, loan against shares, vendor finance. At FYE16, the company had pan-India reach through its near 545 branches (small and medium enterprises and consumer durables), over 9,400 consumer durables stores and more than 3,000 two-wheeler dealer locations. 

BFL's outstanding ratings (including the above) are as follows: 
- Long Term Issuer Rating: ‘IND AAA’; Outlook Stable
- INR60bn long-term non-convertible debentures: ‘IND AAA’; Outlook Stable
- INR20bn long-term unsecured subordinated debt (increased from INR10bn): ‘IND AAA’; Outlook Stable
- INR250bn long-term bank loan: ‘IND AAA’; Outlook Stable
- INR50bn short-term bank loan: ‘IND A1+’



SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in.The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

DISCLAIMER

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Analyst Names

  • Primary Analyst

    Siddharth Goel

    Associate Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001760

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121