An investment should be as risk-free as possible or at least should match your risk appetite. Above all, it should be poised to increase with changes in the economic environment. When we talk about stock investing, long-term investing focuses on sectors that are driving the growth of the economy i.e. the Gross Domestic Product (GDP). It is usually seen the stocks of companies in these sectors increase in value quickly over a few years and create shareholder wealth.
Services and Financial Sector
The services sector has added 54.17% of India’s Gross Value Added at prices of 2018-19. This is a measure of the sectoral performance apart from the GDP of the economy. Financial services form a major chunk of this growth and has received major FPI (Foreign Portfolio Investments) to almost US$14.52 billion during 2019 itself.
Financial services include stock market trading and lending as a major part of its business. Banks and NBFCs are the loan givers in an economy with NBFCs giving almost 20% of the loans in India. While the banking system has its own economic cycles, NBFCs are also affected by various macro-economic changes.
Top Tier Performance for BFL
Bajaj Finance Ltd. has increased its new loans by 53% to 23.50 million for FY19 and for Q3 FY20, there has been a 13% increase (from Q3 FY19) to 7.67 million. The company also grew its customer franchise by 24% (YoY) to 40.38 million and this has resulted in an income increase of 45% to Rs. 1,85,018 million in FY19 and Q3 FY20 increase of 41% with Rs. 70,259 million. The operating costs grew only by 28% to Rs. 4,198 crores in FY19. The company saw its Profit After Tax grow to Rs. 16,141 million for Q3 FY20. This is an increase of 52% over Q3 FY19.
One of its largest peers, IL&FS has gone under owing to poor credit management and many others such as IIFL, Max Financial Services, Manappuram and Sundaram which are the well-known peers do not fall in the vicinity of size and earnings.
Investing in Bajaj Finance
Stock investing requires you to study the industry and understand its long-term growth and scope for potential. There are certain thumb rules for investing in a good stock. Since Bajaj Finance is an NBFC stock, its capital and liquidity are some of the important parameters to be evaluated before you decide to invest in it.
Here are the seven most important factors that need to be considered before you make a decision to invest in Bajaj Finance share –
- Past Performance – The Bajaj Finance share price has been reflecting the confidence of investors and rating agencies since last five years easily. The share prices have gone up giving a CAGR (compounded annual growth rate) of 47.99%. This is higher than any other peers in its group.
- Future Prospects – The company is prepared for the future with financial services, lending, investments, insurance, and securities business (Bajaj Financial Securities) with a large network with 986 locations and 85,700+ active points of sale. It also follows a unique hub and spoke model for rural areas with 1,193 locations and retail presence across 17,900 points of sale. If the lending business faces challenges in a period, it has securities and insurance businesses to back it up and vice versa. This diversification is unique among its peers.
- Lowest NPA – This is one of the single-most reasons to invest in the company as it has the lowest Net NPA (0.70%) in the NBFC sector as on 31 December, 2019. This shows the astuteness and tight control on the credit appraisal mechanism, servicing of the loan as well as the recovery mechanism of the company.
- Maintenance of Liquidity – The company under the RBI regulations has manged to prudently manage its Asset-liability mix with raising long-term debts and a mix of borrowings from banks, financial institutions and money markets. In November 2019, it raised Rs. 8,500 crores via a Qualified Institutional Placement from major foreign investors.
- Capital Adequacy – The company has strong fundamentals to stand on with capital adequacy of 26.87% as on 31 December 2019 which means it has capital for 26.87% of the loans it has disbursed. This is much higher than the RBI mandated 16.27%.
- Trust – The company’s instruments are backed by high credit ratings from leading credit rating agencies of S&P and ICRA. The company’s overall debt is rated AAA and its fixed deposits are rated FAAA/Stable by CRISIL and MAAA/Stable by ICRA.
- Low Costs – Bajaj Finance management is visionary and runs a tight ship with low cost of funds even when the funds for the NBFC industry were scarce. The company has efficient management and expense reduction to ensure the profitability stays in place.
Thus, Bajaj Finance and its holding company Bajaj Finserv are one of the leading NBFCs in the country with servicing almost 40.38 million customers and Bajaj Finance share price is one the best in the NBFC sector.