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SYNOPSIS

We initiated coverage of Bajaj Finance Ltd and set a target price of Rs.940.00 for Medium & Long term investment.

Bajaj Finserv Lending is one of the most diversified NBFCs in the market catering to more than 5 million customers across the country.

During the quarter, the robust growth of Net Profit is increased by 53.16% to Rs. 1082.70 million.

The company product offerings include Consumer Durable Loans, Personal Loans, Loan against Property, Small Business Loans, Two & Three-wheeler Loans, Construction Equipment Loans, and Loan against Securities & Insurance Services.

The company recommended Dividend of Rs. 12/- per equity share of face value of Rs. 10/-.

Net Sales and PAT of the company are expected to grow at a CAGR of 31% and 45% over 2011 to 2014E respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 12 21630.20 13601.70 4064.40 98.36 8.54

FY 13E 26388.84 16907.48 5771.93 139.69 6.01

FY 14E 31138.84 19991.67 7453.30 180.38 4.66

Stock Data:

Sector: Financial Services

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 916.00/552.15

Volume (2 wk. Avg.) 3609.00

BSE Code 500034

Market Cap (Rs in mn) 34708.80

Share Holding Pattern

1 Year Comparative Graph

BSE SENSEX BAJAJ FINANCE LTD

C.M.P: Rs. 840.00 Target Price: Rs. 940.00 Date: May 28th 2012 BUY

Bajaj Finance Ltd Result Update: Q4 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Bajaj Finance 840.00 34708.80 98.36 8.54 1.96 100.00 Shriram City Union

Finance 615.00 32225.50 65.37 9.41 2.69 60.00

Reliance Capital 322.55 79755.80 21.10 15.36 1.13 65.00 Mahindra & Mahindra

Financial Services 626.60 65168.10 59.62 10.51 2.10 100.00

Investment Highlights

Q4 FY12 Results Update

Bajaj Finance Ltd has reported net profit of Rs 1082.70 million for the quarter

ended on March 31, 2012 as against Rs 706.90 million in the same quarter last

year, an increase of 53.16%. It has reported net sales of Rs 6189.00 million for the

quarter ended on March 31, 2012 as against Rs 3892.50 million in the same

quarter last year, a rise of 59.00%. Total income grew by 57.97% to Rs 6233.00

million from Rs.3945.60 million in the same quarter last year. During the quarter,

it reported earnings of Rs 26.20 a share.

Quarterly Results - Standalone (Rs in mn)

As At Mar-12 Mar-11 %change

Net sales 6189.00 3892.50 59.00

PAT 1082.70 706.90 53.16

Basic EPS 26.20 19.30 35.78

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� Break up of Expenditure

� Recommends Dividend

Bajaj Finance Ltd recommended Dividend of Rs. 12/- per equity share of face value

of Rs. 10/-. The Dividend, if declared by the shareholders, will be credited /

dispatched between July 23, 2012 to July 25, 2012.

� Allotment of Shares

The Company has allotted 46,90,000 equity shares to the promoter, Bajaj Finserv

Ltd on conversion of warrants issued to it.

Company Profile

Bajaj Finance Ltd offers loans for various needs. The company offer loans for Bajaj

Auto Two Wheelers under the name of Bajaj Finance Ltd. The company Consumer

Durable Loans, Personal Loans, Loan against Property, Small Business loans,

construction, Equipment Loans, Loan Against Securities and Insurance services under

the name of Bajaj Finserv Lending.

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Bajaj Finserv Lending is one of the most diversified NBFCs in the market catering to

more than 5 million customers across the country. Apart from being a well recognized

organization. The company product offerings include Consumer Durable Loans,

Personal Loans, Loan against Property, Small Business Loans, Two-wheeler and

Three-wheeler Loans, Construction Equipment Loans, Loan against Securities and

Insurance Services.

Bajaj Finance Ltd unique products feature across all categories and offer a compelling

value proposition to their customers. The company strong presence in the Indian

market for over 23 years has enabled to establish a strong foothold here and the

company aim to continuously provide their customers with premium service and

exclusive benefits.

Business Segment

� Two and Three Wheeler Financing

� Consumer Durables Financing

� Personal Loan Cross-Sell

� Personal and Small Business Loans

� Vendor Financing

� Mortgages

� Construction Equipment Finance

� Infrastructure Finance

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Products & Services

� Personal

• Lifestyle Product Finance

Lifestyle products include the categories such as Home improvements, Modular

Kitchens, Jacuzzi & Bathroom Fittings, Kitchen Equipments, Home furnishings,

Luxury watches, Digital lifestyle products, High-end Camera’s, Tablet PC’s,

Smart-phones and many more.

• Consumer Durable Loans

Bajaj Finserv Lending is one of the leading financiers in the market offering

consumer durable loans on EMI. Now you can easily avail a loan for products

like LCD, LED, Color TV, Refrigerator, Washing Machine, Air Conditioner,

Music System, and Microwave amongst a host of other products. Bajaj Finserv

Lending consumer durable loan comes with 0% financing and with a small fee.

• Personal Loan

Bajaj Finserv Lending personal loans can be availed for personal use without

providing security or guarantors. The company offer loans that are convenient,

flexible, come with fast processing and have superior features like Nil

prepayment charges.

• Credit Card

Bajaj Finserv Standard Chartered Credit Card comes in 2 variants - the World

Credit Card and the Platinum Credit Card.

� Business

• Small Business Loans

Small Business Loans come with fast approval and hassle free documentation.

Like manufacturing sector, service industry or any other field.

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• Loan Against Property

Bajaj Finserv Lending offers Loan against Property which helps you avail a loan

between Rs. 20 lacs and Rs. 20 crores, which can be paid over a term of up to

15 years, in a convenient manner by mortgaging the property as collateral.

• Loan against Securities

The company has an approved selection of shares and mutual funds against

whom offer loan disbursement. The loans are available from Rs. 50 lacs to Rs.

10 crores and for a maximum period of 24 months.

• Construction Equipment Finance

The company offer finance for various infrastructure related equipments in the

field of Construction, Mining, and Material Handling businesses

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY11 FY12 FY13E FY14E

Description 12m 12m 12m 12m

Net Sales 13923.30 21630.20 26388.84 31138.84

Other Income 138.00 88.90 97.79 109.52

Total Income 14061.30 21719.10 26486.63 31248.36

Expenditure -6464.00 -8117.40 -9579.15 -11256.69

Operating Profit 7597.30 13601.70 16907.48 19991.67

Interest -3779.50 -7461.80 -8207.98 -8864.62

Gross profit 3817.80 6139.90 8699.50 11127.05

Depreciation -118.60 -117.70 -148.50 -166.32

Profit Before Tax 3699.20 6022.20 8551.00 10960.73

Tax -1232.90 -1957.80 -2779.08 -3507.43

Profit After Tax 2466.30 4064.40 5771.93 7453.30

Extraordinary Items 3.30 0.00 0.00 0.00

Net Profit 2469.60 4064.40 5771.93 7453.30

Equity capital 366.30 413.20 413.20 413.20

Reserves 13214.80 17279.20 23051.13 30504.43

Face value 10.00 10.00 10.00 10.00

EPS 67.42 98.36 139.69 180.38

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12E

Description 3m 3m 3m 3m

Net sales 4916.80 6027.70 6189.00 6807.90

Other income 16.20 7.90 44.00 39.60

Total Income 4933.00 6035.60 6233.00 6847.50

Expenditure -1937.00 -2149.00 -2245.90 -2518.92

Operating profit 2996.00 3886.60 3987.10 4328.58

Interest -1673.20 -2072.10 -2340.00 -2457.00

Gross profit 1322.80 1814.50 1647.10 1871.58

Depreciation -34.00 -39.80 -34.70 -35.74

Profit Before Tax 1288.80 1774.70 1612.40 1835.84

Tax -415.10 -574.80 -529.70 -592.98

Profit After Tax 873.70 1199.90 1082.70 1242.86

Equity capital 366.30 366.30 413.20 413.20

Face value 10.00 10.00 10.00 10.00

EPS 23.85 32.76 26.20 30.08

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Key Ratios

Particulars FY11 FY12 FY13E FY14E

No. of Shares(in mn) 36.63 41.32 41.32 41.32

Market Price 840.00 840.00 840.00 840.00

EPS (Rs.) 67.42 98.36 139.69 180.38

EBITDA Margin (%) 54.57% 62.88% 64.07% 64.20%

PBT Margin (%) 26.57% 27.84% 32.40% 35.20%

PAT Margin (%) 17.71% 18.79% 21.87% 23.94%

P/E Ratio (x) 12.46 8.54 6.01 4.66

ROE (%) 18.16% 22.97% 24.60% 24.11%

ROCE (%) 9.57% 15.57% 17.51% 18.57%

Debt Equity Ratio 4.94 3.98 3.15 2.51

EV/EBITDA (x) 4.05 2.55 2.05 1.74

Book Value (Rs.) 370.76 428.18 567.87 748.25

P/BV 2.27 1.96 1.48 1.12

Charts:

Net sales & PAT

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P/E Ratio

Debt Equity Ratio

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EV/EBITDA Ratio

P/BV Ratio

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Outlook and Conclusion

At the current market price of Rs.840.00, the stock is trading at 6.01 x FY13E

and 4.66 x FY14E respectively.

Earning per share (EPS) of the company for the earnings for FY13E and FY14E

is seen at Rs.139.69 and Rs.180.38 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 31% and

45% over 2011 to 2014E respectively.

On the basis of EV/EBITDA, the stock trades at 2.05 x for FY13E and 1.74 x for

FY14E.

Price to Book Value of the stock is expected to be at 1.48 x and 1.12 x

respectively for FY13E and FY14E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.940.00 for Medium to Long term investment.

Industry Overview

The Indian financial services industry has a lot of scope for further penetration, and

thus has immense scope and potential to grow exponentially. The online genre, mobile

explosion, emergence of social media platforms, technologies like cloud computing and

increasing pace of convergence and interconnectivity of devices are intensely driving

the growth of this industry. These are playing pivotal roles in transforming the way

financial services are delivered to the end-consumer. Further, financial institutions are

revamping their operational infrastructure and business delivery models.

Financial services industry mainly comprises the BFSI industry, that is, banking,

financial services (such as mutual funds) and insurance. Key developments and

performance pointers pertaining to each of these sub-segments are discussed in this

overview.

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Insurance Sector

There are 24 life insurers in India with about Rs 15 trillion (US$ 292.5 billion) in

assets.

According to data released by the Insurance Regulatory and Development Authority

(IRDA), the life insurance industry collected Rs 89,655.83 crore (US$ 17.5 billion)

during April 2011-February 2012 by writing new policies while the insurers sold about

35.12 million policies collectively. Private players sold seven million policies.

The general insurance industry continued with its growth trajectory as the gross

written premium grew 24.03 per cent during 2011-12 against the year-ago period.

Banking Services

According to the world's largest rating agency, Standard & Poor (S&P)'s Ratings

Services, India's banking system has a high level of stable, core customer deposits

supported by the system's good franchise, extensive branch networks, and large, yet

growing, domestic savings.

• According to the Reserve Bank of India (RBI)'s 'Quarterly Statistics on Deposits and

Credit of Scheduled Commercial Banks', September 2011, Nationalised Banks, as a

group, accounted for 52.2 per cent of the aggregate deposits, while State Bank of

India (SBI) and its associates accounted for 21.8 per cent. The share of New private

sector banks, Old private sector banks, Foreign banks and Regional Rural banks in

aggregate deposits was 13.7 per cent, 4.8 per cent, 4.6 per cent and 2.9 per cent,

respectively.

With respect to gross bank credit also, nationalised banks hold the highest share of

51.6 per cent in the total bank credit, with SBI and its associates at 22.1 per cent

and New Private sector banks at 13.8 per cent. Foreign banks, Old private sector

banks and Regional Rural banks held relatively lower shares in the total bank

credit with 5.2 per cent, 4.8 per cent and 2.5 per cent, respectively.

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• Another statement released by the RBI stated that bank deposits grew 13.4 per

cent to Rs 60.72 trillion (US$ 1.18 trillion) in the fiscal 2011-12 (the year to March

23, 2011) while loans and advances grew 17.08 percent to Rs 47.54 trillion (US$

927.16 billion).

Mutual Funds Industry in India

The Rs 6.70 trillion (US$ 130.66 billion) Indian mutual funds (MF) industry has 44

asset management companies (AMCs). Recent data released by the Association of

Mutual Funds in India (AMFI) indicated that average assets under management (AUM)

reported by these fund houses amounted to Rs 6,68,824 crore (US$ 130.33 billion) in

2011-12.

HDFC Mutual Fund maintained its top position as the country's biggest MF with an

average AUM of Rs 89,879 crore (US$ 17.51 billion), followed by Reliance MF (Rs

78,112 crore [US$ 15.22 billion]), ICICI Prudential MF (Rs 68,718 crore [US$ 13.39

billion]), Birla Sunlife MF (Rs 61,143 crore [US$ 11.92 billion]) and UTI MF (Rs 58,922

crore [US$ 11.48 billion]).

Private Equity (PE) and Mergers & Acquisitions (M&A) in India

India Inc witnessed 202 merger and acquisition (M&A) deals worth US$ 9.4 billion

during the first quarter of 2012. According to Ernst & Young (E&Y)'s latest

transactions quarterly report, deals in January-March 2012 were 22 per cent higher

than those of October-December 2011 quarter in terms of volume and 4.5 times higher

in terms of value. Domestic deals dominated the M&A space as they accounted for 63

per cent of the total number of deals and contributed 88.4 per cent of the total

disclosed deal value for the quarter.

According to experts, M&A landscape is likely to experience intense activity in the

coming months, owing to improving stock markets and better availability of finance

options.

Private equity (PE) and venture capital (VC) investors infused a capital of US$ 1.88

billion across 90 deals during the reported period.

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Foreign Institutional Investors in India

According to the data released by Securities and Exchange Board of India (SEBI), net

investment in equities made by foreign institutional investors (FIIs) stood at Rs 47,935

crore (US$ 9.34 billion) during the financial year ended March 31, 2012. During the

reported fiscal, foreign fund houses injected Rs 49,053 crore (US$ 9.56 billion) in the

debt market taking the collective net investments by FIIs in stocks and bonds to Rs

93,725 crore (US$ 18.26 billion).

Recent Developments

• India has launched the country's first domestic payment card network, RuPay, to

compete with multinational Visa Inc. and Mastercard Inc. The new development

will not only help banks reduce cost of issuing a debit card but will also lead to

expansion of payment network in rural areas. National Payments Corp of India Ltd

(NPCI), the nodal agency to manage and promote RuPay, has stated that 200,000

RuPay cards have already been issued and the target is to have 10 million debit

cards under the brand by March 2013.

• Stating India as 'extraordinarily attractive investment destination', PE firm Bain

Capital LLC has announced that it will infuse about US$ 800 million in appropriate

proposals across four investment deals during 2012-16.

• L&T Finance has decided to buy Fidelity Worldwide Investment's Indian mutual

fund business. The deal would boost L&T's assets to Rs 13,500 crore (US$ 2.63

billion), making it the 13th biggest fund house and the 10th largest on the basis of

equity.

• In a recent announcement, the RBI has granted FIIs to invest in primary issuances

of companies' non-convertible debentures (NCDs), provided these papers are

scheduled to be listed on the stock exchanges within 15 days of being issued. If the

instrument, that is the NCD, does not get listed within 15 days, the foreign investor

concerned would have to sell the securities to a domestic investor.

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Government Initiatives

In its Budget for 2012-13, the Government has earmarked a capital of Rs 15,888 crore

(US$ 3.11 billion) to be infused in public sector banks, regional rural banks and other

financial institutions. Apart from this, the Government is also planning to set up a

financial holding company that will raise funds for public sector banks.

Furthermore, the RBI has liberalised regulations pertaining to FCAs to provide

operational flexibility to Indian entities making overseas direct investments. After

satisfying stipulated requirements and conditions, Indian entities can open, hold and

maintain FCAs abroad that would simplify the process of making overseas direct

investments.

Road Ahead

According to a report by the Boston Consulting Group (BCG) India, prepared in

association with a leading industry organisation and Indian Banks Associations (IBA),

Indian banking industry would be the world's third largest in asset size by 2025 and

mobile banking would become the second largest banking mode after ATMs.

Furthermore, owing to the positive eco-system of the industry and regulatory and

Government initiatives, mobile banking is anticipated to enhance from 0.1 per cent of

transactions in a 45 per cent financial inclusion base in 2010 to 34 per cent of the

transactions with 80 per cent rural inclusion base by 2020, as per the report.

While the Indian Government projects that qualified foreign investors (QFIs) would

invest US$ 50-75 billion in India's equity and bond markets, G Chokkalingam,

Executive director and CIO, Centrum Wealth Management, believes that Indian

markets would witness record inflows, probably to the extent of US$ 30 billion, by FIIs

in 2012.

Such positive forecasts are being made owing to monetary expansions in the West and

considering that India would remain the second-fastest growing economy in the world.

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______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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