Bajaj Finance ’s Managing Director Rajeev Jain reports that in the past 10 days, the company has lost around 350,000 customers which has consequently affected its assets under management (AUM) by a sum of Rs 4,750 crore. This sum accounts for 3.22% of the total AUM as of March 31.
This clearly brings out the reason behind the weak 27% AUM growth in March 2020 quarter(Q4) against its 7-quarter average growth of 37%. Had the events not taken an unfortunate turn, the company would not have lost its customers and the AUM for Q4 would have grown 31.5% YoY.
Managing Director Rajeev Jain depicts the current situation “an uncharted zone”. He believes “we will be practically flying blind between April 15 and June 30”.
The harsh impacts of lockdown
Our country’s largest consumer finance company is under immense pressure owing to the unprecedented lockdown. The 90 days April-June 2020 quarter has been reduced to 60 days. This will evidently have a severe impact on its business.
In case the lockdown is lifted by April 14, things may get back normal by September, else the business is only expected to pull through by the March 2021 quarter.
The company’s new customer addition and new loans stats were already notably weak since FY15. FY17 received another hit via demonetization. Asset quality deterioration is again a burdensome aspect. In view of COVID-19, Bajaj Finance is considering one-time accelerated provisioning as a means of strengthening its standards.
Taking all factors into account, investors must brace themselves for a 40-50% escalation in the credit cost. In the worst scenario, this can even increase by 80-90%.
The recovery schemes
The company has decided to jam up its fixed operational costs. Consequently, the hiring, travelling and branch expansion have been put on hold thereby prompting 7-8% savings on costs. The recovery of operations is largely dependent on when the economic activities in the country begin again.
The company is primely focused on maintaining adequate liquidity. Despite the drastic turn of events, Bajaj Finance remains well off with a 25% capital adequacy ratio.
