Bajaj Finance misses estimates for Q1 as lockdowns hit business

Consolidated net profit increased 4% to ₹1,002 crore in the quarter ended June 2021 from ₹962 crore a year ago. Net profit was lower than the ₹1,357 crore consensus estimates of analysts tracked by Bloomberg. It was also down 34% from ₹1,347 crore in the quarter ended March 2021.

“It was a muted quarter impacted by a severe second wave of the pandemic. Both businesses and debt management efficiencies were affected due to strict lockdowns across most parts of India,” the company said in its investor presentation. Business transformation plans remain on track for phase-1 to go live in October 2021.

Total loan book increased 15% year on year also boosted by IPO financing. Loan book increased to 1.59 lakh crore, including IPO financing of ₹2,942 crore as of June 2021 from ₹1.38 lakh crore a year ago.

Net Interest Income (NII) increased by 8% to ₹4,489 crore from ₹4,152 crore despite a higher interest income reversal of ₹451 crore compared to ₹306 crore a year ago.

Higher costs affected business as total operating expenses to net interest income ratio rose to 30.6% from 27.9% last year.

Provisions for bad loans increased to ₹1,750 crore from ₹1,686 crore and also up from ₹1,231 crore in the quarter ended March 2021.

Bajaj Finance accelerated write-offs of ₹113 crore of principal outstanding on account of Covid-19 related stress during the quarter.

Gross NPAs increased to 2.96% from 1.40% of loans a year ago indicating the stress in the company’s loan book. It has restructured close to 1.04 lakh accounts with an exposure of ₹1,085 crore through the RBI window.

The company has provisioning coverage ratio (PCR) of 51% on stage 3 assets with a capital adequacy ratio of 28.57% as of June 2021.

Rajiv Mehta, lead analyst, institutional equities at Yes Securities, said the decline in PCR to 50% from 58% in preceding quarter is a bit perplexing given the higher credit costs accounted for by the company.

“Bajaj Finance delivered a 30% PAT miss on our estimates, on the back of 10% NII/PPOP miss and 20% higher loan impairment provisions. Since the first quarter has been a large miss on expectations and provisioning buffer has declined, incremental bounce, collections and roll-back trends would be key monitorables. The management’s credit cost and growth guidance for the rest of the year is primarily anchored on these metrics staying healthy,” Mehta said.

Meanwhile, the company’s board has approved the appointment of former Citibank India CEO Pramit Jhaveri as independent director for a five-year term effective August.