Bajaj Finance (Bajaj) is the only NBFC in India that prioritises customer ‘ownership’ over mere ‘lending’. Providing financial solutions to India’s burgeoning aspirational middle class forms the crux of Bajaj’s unique business model, which will allow the business to showcase >25% growth in AUM and RoE in the near future. The company sports the lowest cost of delivery (cost of funds + cost to assets) among NBFCs, which is backed by a strong cross-sell/up-sell engine (cross-sell customer base at >60% of total) and robust digital infrastructure – arm in arm, these form the bedrock of Bajaj’s leadership now and going ahead too in the NBFC space. We initiate coverage with a BUY and TP of INR 8,500 (SoTP), valuing standalone business at 5x FY26E BVPS and INR 830 towards housing subs. We model ~29% AUM CAGR and expect ~19-20% RoE over FY24-26E.
Healthy customer acquisition run-rate to march on – omnichannel presence a strong enabler…
A noteworthy aspect about Bajaj’s customer acquisition journey is its prominence at every conceivable point-of-sale, be it a brick-and-mortar establishment or digital purchases through mobile application and ecommerce platforms. Its value-add services such as Insta EMI card, Bajaj App, Bajaj Mall, QRs at merchant etc. reflect its nimbleness towards adapting with evolving customer preferences for purchases. Its total customer base stands at 80.4mn, as on Dec’23, and it expects to build a total customer franchise of 110-120mn by FY27E.
…will help deliver >25% AUM growth over FY24-FY26E
Historical trends suggest a direct correlation between Bajaj’s overall AUM growth and new customer acquisition – between FY13–23, total customer franchise grew by 31% CAGR while overall AUM grew by 27% CAGR. The same also held true during the pandemic where the AUM CAGR dipped to 12.4% in FY20-22 (vs 31% in FY13-20), followed by the drop in customer acquisitions CAGR to 16% in FY20-22 (vs 37% in FY13-20). On a quarterly basis, Bajaj at present adds ~3.5mn customers; should it maintain pace, total customer franchise shall reach ~84mn by Mar’24. The company has shared its vision of reaching 110-120mn customers by FY27E, implying new customer addition of 10mn each year till FY27 – in-line with its new customer addition run-rate during FY23-9MFY24. With its strengthening cross-sell franchise and higher product per customer for 24 Month on Books (MoB) customers (1.4 lending products for 12 MOB customers vs. 2.1 product for 24 MOB customers), we model 29% AUM CAGR over FY24-26E
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