Bajaj Finance - Incred Equities

Company Note Finance Companies │ India │ October 07, 2021
India
Bajaj Finance Ltd
ADD (Initiating coverage)
Consensus ratings*: Buy 14 Hold 9 Sell 7 From conventional lending to a Fintech way
Current price: Rs7,748
■ Bajaj Finance, a diversified NBFC, is aiming to transform fintech, in our opinion,
Target price: Rs9,650
to expedite customer acquisition/retention while improving user experience.
Previous target: NA
Up/downside: 24.5% ■ The fintech transformation will provide access to a transactions data mine
InCred Research / Consensus: 50.7% which we believe is at zero cost and will be cornerstone of product innovation.
■ We are of the opinion that BAF needs to be valued on a sum-of-parts basis,
Reuters: BJFN.NS
whereby the lending and fintech businesses should be valued separately.
Bloomberg: BAF IN
Market cap: US$62,530m
Rs4,676,298m
Fintech platform to aid customer acquisition at virtually zero cost
Bajaj Finance (BAF), one of the first few conventional lenders to adopt the fintech platform,
Average daily turnover: US$158.4m
Rs11843.3m
will derive a robust first-mover advantage especially on the customer acquisition front, in
Current shares o/s: 0.0m our opinion. So far BAF's consumer durables financing has been the frontrunner of its
Free float: 40.0% customer acquisition engine, but we expect the newly launched payment portal would now
*Source: Bloomberg become a more effective acquisition platform at virtually zero cost with zero credit risk. We
believe this would resolve the perpetual question over BAF’s ability to maintain healthy
AUM growth with consistency in customer acquisition.
Product innovation as per customer needs to ensure better retention

With over a decade of retail lending experience, BAF has managed to curate an innovative
product basket with a sizeable cross-sell customer base, wide merchant connects and well-
filtered credit assessment processes. We believe access to users' transaction data will
enhance BAF’s product innovation capabilities, enabling it to deliver unique and
customized products to ensure better customer retention.
SOURCE: BLOOMBERG
BAF to achieve ~5% of Indian loan market share in next 8-10 years
Price performance 1M 3M 12M BAF is an aggressive lender with consistent focus on improving its existing customer base
Absolute (%) 3.9 25.0 132.6 and cross-sell network. We firmly believe that by entering the fintech platform BAF would
Relative (%) 1.4 10.1 56.6 be able to gain ~5% of the Indian loan market share in the next 8-10 years against ~1.5%
Major shareholders % held currently. Historically, HDFC Bank improved its loans market share to ~10% in FY20 vs
Bajaj Finserv Ltd 52.7 ~4% in FY12. Given the increasing penetration with an accelerating digitization drive, we
Government of Singapore 4.2 believe BAF could achieve a similar milestone.
Maharashtra Scooters Ltd 3.1
Valuation and risks
We initiate coverage on Bajaj Finance with an Add rating and a sum-of-parts-based (SOP)
TP of Rs9,650, where we value the lending and fintech businesses separately. We value
BAF’s lending business on an excess return on equity (ERoE) basis, arriving at a TP of
Rs7,500 for Mar-23F, ~7x P/B on Mar-24F. We benchmark BAF’s fintech business with
Paytm’s current valuations considering the similarities in their areas of operations. We
assume BAF will reach ~5% of UPI market share by FY23F and weight it against Paytm’s
valuations, which values BAF’s transactions business at Rs2,150 for Mar-23F. The key
downside risks are regulatory risks, key personnel risk, and the pandemic’s resurgence.
Financial Summary Mar-20A Mar-21A Mar-22F Mar-23F Mar-24F

Net Interest Income (Rsm) 135,090 139,043 185,871 233,786 301,744
Analyst(s) Total Non-Interest Income (Rsm) 34,034 33,647 39,310 44,161 50,537
Pre-provisioning Operating Profit (Rsm) 112,516 119,608 156,630 194,707 253,917
Total Provision Charges (Rsm) (39,295) (59,686) (47,573) (47,274) (57,551)
Net Profit (Rsm) 52,637 44,198 81,465 110,132 146,685
Core EPS (Rs) 87.74 73.47 135.41 183.07 243.83
Core EPS Growth (18%) (16%) 84% 35% 33%
FD Core P/E (x) 87.74 73.47 135.41 183.07 243.83
DPS (Rs) 10.00 10.00 27.08 36.62 48.77
Jignesh SHIAL Dividend Yield 0.13% 0.13% 0.35% 0.47% 0.63%
T (91) 22 4161 1547 BVPS (Rs) 538.8 613.7 722.0 868.5 1,063.5
E jignesh.shial@incredcapital.com P/BV (x) 14.38 12.63 10.73 8.92 7.29
Akshay DOSHI ROE 20.2% 12.8% 20.3% 23.0% 25.2%
T (91) 22 4161 1548 % Change In Core EPS Estimates
E akshay.doshi@incredcapital.com InCred Research/Consensus EPS (x) 1.14 1.07 1.12
SOURCES: INCRED RESEARCH ESTIMATES, COMPANY REPORTS. PRICED AS AT 7 OCT 2021
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Finance Companies │ India
Bajaj Finance Ltd │ October 07, 2021
Story in Charts
Figure 1: Aggressive customer acquisition is BAF’s key Figure 2: ~54% of BAF customers are eligible for cross-sell
strength
Total Customer Franchise (LHS: Nos. mn) Cross-Sell Franchise (LHS: Rs m)

New to Bajaj cust. acquired during qtr (RHS: Nos. mn) Cross-Sell Franchise / Overall Franchise (RHS: %)
50 80%
60.0 3.0
45 70%
48.6 50.5 60% 60% 59% 59% 58%
50.0 46.3 2.5 40 59% 59% 57% 56%
42.643.0 44.1 54% 55% 55% 54% 60%
40.4 35
40.0 36.9 38.7 2.0
32.634.5 30 26.9 27.4 50%
25.3
30.1 22.8 23.5 24.1 24.1 23.9
30.0 26.228.3 1.5 25
19.7 20.7 21.9 40%
20 16.6 17.8 30%
20.0 1.0 15
20%
10
10.0 0.5
5 10%
0.0 0.0 0 0%
SOURCES: INCRED RESEARCH, COMPANY REPORTS SOURCES: INCRED RESEARCH, COMPANY REPORTS
Figure 3: Overall cost remained controlled despite aggressive Figure 4: Mix of secured/unsecured lending has been fairly
customer additions balanced for years
Cost to Average Assets

Secured Partly Secured Unsecured
7.5%
100%
6.5%
90% 23.8% 26.0% 28.5% 27.6%
5.5% 5.0% 80%
4.6%
70%
4.5% 4.0% 3.9%
60% 31.7% 30.9% 28.0% 28.1%
3.2%
3.5% 2.7% 50%
40%
2.5%
30%
1.5% 20% 44.6% 43.1% 43.5% 44.3%
10%
0.5%
0%
-0.5% FY16 FY17 FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21
SOURCES: INCRED RESEARCH, COMPANY REPORTS SOURCES: INCRED RESEARCH, COMPANY REPORTS:
Figure 5: UPI transactions witnessed major surge in the past year Figure 6: Dominated by two players which we expect to change
55.0 Phone Pe
Value (LHS: Rs tn) Volume (RHS: bn)
50.0
60.0 22.3 25.0 Google Pay
45.0
50.0 40.0
20.0
41.0 35.0
40.0
15.0 30.0
12.5
30.0 25.0
Paytm
21.3 10.0 20.0
20.0 15.0
5.4
Others 0.2
8.8 5.0 10.0
10.0
0.9 5.0
1.1
0.0 0.0 -
FY18 FY19 FY20 FY21 - 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
SOURCES: INCRED RESEARCH, NATIONAL PAYMENTS CORPORATION OF INDIA (NPCI)

SOURCES: INCRED RESEARCH, NATIONAL PAYMENTS CORPORATION OF INDIA (NPCI)
2
Fintech story - What’s changing in BAF & why

we are bullish
Bajaj Finance (BAF) is one of India’s most diversified non-banking financial
company (NBFC) with a wide portfolio of products across the consumer, SME and
commercial lending segments. It is one of the largest players in the consumer
finance segment and a pioneer of interest-free equated monthly instalment (EMI)
finance (the origin of Buy Now, Pay Later transactions).
Business transformation – One platform for solutions

BAF was among the early movers from ‘Physical’ to ‘Phygital’ in a seamless
manner. It is now moving a further step forward towards ‘Phygital’ by providing
financial products and services to its existing ~48.6m customers as at Jun 2021
by creating an omnichannel framework allowing its customers to move online and
offline and vice versa in a frictionless manner.
BAF Super App – The customer-friendly approach

BAF is building its customer-facing super app to offer a superior visualisation
experience with encompassing wallets, Unified Payments Interface (UPI), bill pay
services, and a single-payment checkout gateway. It has customer engagement
features like in-app programs, rewards, offers, deals, and location-based services
as well as smooth running loans, investments, and insurance distribution.
Post obtaining approval from the Reserve Bank of India (RBI) to run its own wallet
business, BAF has developed a wallet application called Bajaj Pay which will offer
an integrated payment solution to its customers, comprising UPI, prepaid payment
instruments (PPI), EMI card, and credit card products.
• To utilise BAF’s existing merchant tie-ups (~98,300 across India), BAF is
developing a payment app for merchants to ensure superior market share.
• To enhance overall customer experience, BAF is developing five proprietary
marketplaces: (a) EMI Store, (b) Insurance Marketplace, (c) Investment
Marketplace, (d) BFL Health, and (e) Broking App. These apps will provide a
host of financial products/ services across categories.
• The company plans to partner with 25+ adjunct app ecosystems, with
related product or service offerings, to increase customer stickiness.
• Finally, to improve productivity, BAF is developing four productivity apps to
enhance efficiencies: (a) Sales One, (b) Merchant, (c) Collections, and (d)
Partner. The company also resorted to Zero-Based Budgeting to reimagine
all its functions and sharply reduce its operating cost.
Does this mean BAF will operate only digitally?

The clear answer is No. BAF is and will continue to operate Phygital.
BAF’s super app is yet another tool for customer acquisition, with complete
flexibility for its customers to move from online to offline and vice versa.
For instance, the entire Finserv marketplace is operational on a geotag
basis, whereby customers will be linked to a nearby dealer based on their
location. If in need of assistance, the customer can shift to a physical format
in a hassle-free manner. Such dealer tie-ups and delivery within 24 hours is
a key differentiating factor from existing marketplaces (Amazon, Flipkart,
etc).
We believe BAF will remain an aggressive lender with consistent focus on
improving its existing customer base and cross-sell network. Apart from the digital
network, the company will continue to use its existing dealer/ DSA and call center
network to source incremental customers.
3
Figure 7: Bajaj wallet has customer-friendly layers Figure 8: It allows various services on a single platform
SOURCES: INCRED RESEARCH, BAJAJ FINSERV WEBSITE SOURCES: INCRED RESEARCH, BAJAJ FINSERV WEBSITE
Figure 9: Bajaj marketplace offers a wide range of products Figure 10: Various individual requirements on a single platform
SOURCES: INCRED RESEARCH, BAJAJ FINSERV WEBSITE SOURCES: INCRED RESEARCH, BAJAJ FINSERV WEBSITE
4
Why we are bullish on transformation

We are optimistic about BAF’s future journey and its ability to manage profitable
growth momentum post this business’s formation.
Transaction data – an architecture for customer acquisition

Present in the retail lending space for more than a decade, BAF has a decent
cross-sell customer base, wide merchant connects and well-filtered credit
assessment process. With its payment app, the company will have complete
transaction data of individual users (who may or may not be customers). This will
likely help it most in designing architecture for customer acquisition.
Bajaj Finance is probably one of the first few conventional lenders to adopt the
fintech platform, providing it a first-mover advantage especially on the customer
acquisition front, in our view. For BAF, B2B sales finance (consumer durables
financing) has remained a key customer acquisition engine. However, we think
the payment portal is an even more effective acquisition platform available at
virtually zero cost with zero credit risk, and zero capital requirement.
• Transaction analysis for understanding consumer behaviour
We believe analysis of transaction volumes will allow the company to tailor
products and services based on the user’s need. The transaction data will
provide simple analytical features like how much the customer spent on
groceries to advanced features like the integration of payment records, etc.
• Customer acquisition and retention

In our view, transaction history will enable the structured understanding of all
kinds of interaction data – from unstructured texts, social network activity to
direct feedback rankings – throughout the customer’s journey. This, we
expect, would enable the efficient spotting of customers most likely to quit the
service or those that could be targeted for upselling activities.
Figure 11: Aggressive customer acquisition is BAF’s key strength
SOURCES: INCRED RESEARCH, COMPANY REPORTS
• Evolution of credit risk / assessment of probable fraudulent transactions

BAF’s access to transaction data would allow the adoption of a faster and
more accurate credit risk evaluation process than a traditional lender,
minimising credit default rates. Transaction data enables the real-time
assessment of fraudulent motives on any given payment.
Adoption of evolving technologies and analytical tools like Big Data, Cloud
Computing and Open-Source software, these state-of-the-art technologies with
more data sourcing will equip the company’s decision engines with real-time
processing capabilities, in our view.
5
Payment business in India is competitive yet monopolistic

With the launch of Bajaj Pay, Bajaj Finance is set to sharpen its focus on the
hyper-competitive payments business in India. As per study reports from NPCI,
digital payments is expected to grow to US$1tr, competition for BAF would include
all the large fintech players and top banks in the country.
According to National Payments Corporation of India (NPCI), UPI
transactions in value terms increased to Rs41tr in FY21 from Rs1.1tr in
FY18, representing CAGR growth of ~234%, whereas volumes increased to
~22.3m transactions in FY21 from ~915m transaction in FY18 – CAGR
growth of ~190%. Of this, Google Pay and PhonePe together have more than
~80% of the UPI transaction market share.
According to an Ernst & Young (EY-India) Venture Capital Association (IVCA)
report over Fintech opportunities in India, digital payments in India are expected
to grow over three-fold at ~27% CAGR during FY20-25 from US$29tr worth of
transactions in FY20 to ~US$95tr in FY25. In fact, India was home to the highest
number of real-time online transactions in 2020, ahead of China and the US.
New NPCI norm is a blessing in disguise for new players

In Nov 2020, in order to avoid monopoly in the digital payments landscape and
probable data overload, the NPCI placed a ~30% cap on UPI transactions through
third-party payment apps (TPAPs). According to the NPCI notification over
restriction on UPI transaction volumes, existing TPAPs will get two years, starting
Jan 2021, to comply with the new norms in a phased manner. However, for new
entrants in the digital payments landscape, notable among them WhatsApp Pay,
the 30% cap is applicable from Jan 2021.
Though existing players have been opposing the norms, the cap is surely
advantageous for new entrants like Bajaj Pay which will be able to grab market
share from large players (PhonePe and Google Pay) and increase penetration
among its existing customers, in our view.
Overall customer acquisition costs will moderate further

The business to business (B2B) Sales Finance business (consumer
durables financing) has remained BAF’s key customer acquisition portal
over the last few years. BAF is present in 1,368 locations with 82,900+ active
distribution points as on Jun 2021 making it the largest electronics, digital
and lifestyle products lender in India.
B2B Sales Finance is where BAF credit tests its new customers. BAF finds new
customers, understands the customer’s repayment pattern, mines data, and
thereafter uses the data to cross sell. This mode has also ensured that overall
customer acquisition costs for the company always remain linear. Thus, we
believe that the cost of acquiring a customer is lowest for BAF.
Most fintech businesses have been spending billions of rupees in cash back and
other incentives to get new customers and keep the existing customer base intact.
BAF’s existing customer pool of ~50.5m customers (as at Jun 2021), with its
overall cross-sell franchise of ~38.3m customers, remains its biggest advantage.
Even on rewarding customers, BAF intends to use coupons programs and
reward points which will probably be shared along with merchants, making
overall customer acquisition even more linear for the company. Hence, we
believe the cost of acquiring incremental customers will continue to be
lower for BAF compared to its peers.
Merchant payment systems to help gain market share
While targeting retail payments, Bajaj Finance is also building a payment offering
specific to merchants. Similarly, BAF’s existing reach of ~98,300 merchants is an
add-on for the company, which will enhance the market share from existing
merchants further, in our opinion.
6
Finserv market places to ensure enriched fee income

We believe the inclusion of Bajaj Finserv marketplace in the super app is a major
tool for cross-sell and third-party distribution to ensure a significant surge in fee-
based income for the company in coming years.
• Insurance marketplace
Though BAF was earlier active in cross-selling insurance products, we expect
there will be new vigour in distributing insurance products to its existing
lending customers and purely payment customers. The company also
distributes Pocket Insurance products, including Covid-19 insurance, wallet
care, mobile device protection, cyber security, etc.
• Investment marketplace
Bajaj Finserv more recently obtained a licence to set up its own asset
management business. BAF will be able to sell its mutual fund schemes along
with existing insurance products.
• BFL Health
BAF has been active in providing health EMI network cards along with other
health products and health insurance policies. It also distributes health
insurance products for Aditya Birla.
• Broking app
BAF has a broking licence and operates in the fixed and variable charge
formats. It has been active in IPO financing for several years. Online broking
platforms witnessed improved average daily turnover (ADTO) share over the
past few quarters and, considering BAF’s existing customer pool, we expect
accretion of market share.
Figure 12: BAF has managed to maintain healthy fee income contribution
Fee Income to PBT
60.0%
50.4%
50.0% 46.5%
38.4%
40.0% 36.0% 35.4%
27.2%
30.0%
20.0%
10.0%
0.0%
FY17 FY18 FY19 FY20 FY21 June'21
We remain optimistic of accelerated growth in fee-based income for the company

in the coming quarters supported by this marketplace formation under the super
app Bajaj Pay.
7
On the lending front, it is a leap from being a product-specific

financier to person-specific lender (similar to a bank)
Most NBFCs in India are mono-line lenders catering to the finance needs of a
particular product category – the specific lending segment. It could be a housing
finance company, gold financier, vehicle financier etc. However, banks in India
(especially private banks) have always been person-specific lenders, providing
their customers a bouquet of lending/deposit/financial services products. Hence,
in our view, stickiness among banking customers remains higher than for NBFCs.
Though Bajaj Finance has a diversified lending portfolio, ranging from consumer
durables financing, 2W financing to personal loans, SME loans and even
corporate loans, its lending model still revolves around financing a particular
product and a subvention earned for the same.
Figure 13: BAF’s product profile (Jun-21) – diversified yet specific products/segments
B2B Products ,
16%
Mortgages, 31%
B2C Personal,
28%
Commercial &
SME, 25%
The aim is to be a one-stop financial services provider

In our view, BAF intends to be the sole financial services provider to its entire
cross-sell customer franchise. A key pillar of BAF’s success has been its data
analytics ability, which allowed it to design products according to its customers’
needs. We believe that an access to transaction data will enhance BAF’s ability to
analyse consumer data at the transaction level. This will ensure more consumer-
driven product offerings from BAF.
Through its super app, BAF management has highlighted that the company
intends to further smoothen the overall customer experience along with providing
various lending and financial services products on a single platform to increase
the customer retention ratio in the organisation, thereby becoming a person-
specific lender (like a bank) based on individual customer needs.
8
Relationship with Bajaj Finserv & Bajaj

Finserv Direct
• Bajaj Finserv (BFS) is a promoter group and holding company with ~52.7%
stake in BAF as at Jun 2021. Apart from owning the lending business through
BAF, BFS operates life and general insurance businesses in India and
recently obtained a licence from the Securities and Exchange Board of India
(SEBI) to form its own AMC business, which will be operational soon.
Bajaj Finserv Direct – the business and ownership

BFS’s 100% subsidiary Bajaj Finserv Direct Limited (BFSD) is a unique and
diversified marketplace for financial services and lifestyle products in India. An
open architecture platform, it offers hundreds of financial product variants across
loans, cards, insurance, investments, and payments, along with thousands of
SKUs across electronics, consumer durables and lifestyle products.
BFSD is an open architecture platform and not restricted to Bajaj Finance. It offers
these products in partnership with 20+ leading industry players. For home loans,
BFSD has a tie-up with PNB Housing and Home First Finance, along with Bajaj
Housing Finance. Similarly for personal loans and credit cards, BFSD has a tie-
up with Axis Bank. Citibank, RBL and SBI Cards have tied up for the credit card
business, whereas Fullerton has a tie-up for personal loans.
Existence of BFSD – Why we remain comfortable

• According to the Reserve Bank of India (RBI), an NBFC cannot indulge
in the purchase or sale of any goods (other than securities). As per RBI
norms, BAF, a lending NBFC, can only operate in the business of
financing. Thus, it makes more sense for the company to have
marketplace ownership with the holding company to remain compliant
with the regulation.
• BAF management has clearly articulated that the company has been
fully compliant with all the necessary regulations at different forums,
providing us with necessary confidence for the newly formed structure
within the group companies and holding company.
• Finserv marketplace is an additional area of growth not only for BAF but
also for BFS. BAF will distribute and finance products available in the
BFDS marketplace. This is an additional stream of revenue for the
company, there is no distribution of revenue from Bajaj Finance’s
current income pool.
We understand there has been some confusion among investors regarding the
revenue sharing methodology between BFSD, BFS and BAF. We believe this is
irrelevant considering their adherence to regulatory requirements and all
transactions within the group companies being executed at arm’s length pricing
and fair practice.
9
BAF’s recent investment in BFSD

In Jul 2021, BAF’s board approved an investment of up to Rs2.8bn in BFSD.
The investment would be undertaken at an arm’s length price, based on an
independent valuation report. The investments would be in the form of
equity shares and/or convertible loan or security into equity shares.
Post investment, there would be no change in control of BFSD. The
maximum percentage of shareholding proposed to be acquired by BAF in
BFSD would be ~19.9% on a fully diluted basis whereas the remaining would
be with BFS.
Figure 14: Current subsidiary holding structure for Bajaj Group – Value unlocking likely over mid to long term
Bajaj Finserv provides another value-unlocking opportunity

BFS, with various subsidiaries and a dynamic business presence,
provides the biggest value-unlocking opportunity over the mid to long
term. The company has already been directly involved in the life and
general insurance businesses and indirectly in the lending business
through BAF.
All the subsidiaries use the Finserv brand. With the addition of the asset
management business and marketplace, the company will be able to
command a premium valuation. The execution and performance of the
current subsidiaries remain the stock’s major catalysts.
10
Fintech landscape in India – Scale needs to

follow rich valuations
India is among the fastest growing fintech markets in the world with ~2,100 fintech
firms across such segments as payments, lending, wealth etc, and with an overall
valuation of US$31bn as of Mar 2021.
Low credit penetration – focused on low-value customers…

The fintech segment has addressed the need of increasing financial penetration
in India for people who remained unbanked or underbanked for years. Thus, the
customer pool that most of this fintech (on lending platform) could gauge
comprises of low-value customers that do not come under formal banking’s radar.
This would likely result in an increase in the entire pool of customers rather than
gaining market share from existing banks or even NBFCs for now.
… however technology advancement to attract the affluent

Having said this, we expect incremental customer flow in the formal financial
channel to be affected, especially for new generation banks and NBFCs as we
expect these fintechs to remain aggressive in client acquisition. As most of them
are backed by strong investor platforms, we expect them to be prepared to burn
extra capital to be relevant in the entire scheme of lending.
India MSME – Low credit penetration is an opportunity

MSMEs typically are more opaque than large firms as they have less publicly
available information. As per the fourth census of Micro, Small and Medium
Enterprises (MSME) only 5.2% of the units (registered and unregistered) had
availed of finance through institutional sources, 2.1% from non-institutional
sources whereas the majority (92.8%) had no finance or depended on self‐
finance. Despite the increase in financing to MSMEs recently, the addressable
credit gap in the MSME sector is estimated at Rs25.8tr (US$397bn).
Figure 15: Financing for MSME segment remained stagnant in Mar 2021 (%)
Institutional Non-
Finance, 5.2 Institutional
Finance, 2.1
No Finance/Self
Finance, 92.7
SOURCES: MINISTRY FOR MSME, INCRED RESEARCH
Despite growth in credit, many MSMEs do not get bank credit due to the lack of
timely credit, information asymmetry, issue of collateral and procedural delays.
Consequently, it becomes difficult for banks to assess the creditworthiness of
MSMEs, which could discourage lenders. This provides sufficient scope for
alternative sources of finance. This is an opportunity being explored by fintech
along with other institutional platforms in general.
11
Regulatory risk exists, but is low

We have witnessed stringent regulatory actions on fintech companies from
neighbouring countries like China to safeguard borrower interests and data
security. However, India is currently witnessing calibrated growth in this nascent
sector. Hence, we expect limited regulatory risk for such companies, at least in
the short to medium term. More recently, the NPCI notified existing and new
payment fintech to restrict their market shares to ~30% of total volumes, indicating
possible regulatory risks across segments for fintech in case regulators, including
the RBI, find any cases of mismanagement.
Current leading fintech firms lack balance sheet strength

BAF’s management believes recent worries over intensifying competition due to
the entry of new fintech is stretched. Most fintech firms in India commanding
extensive valuations lack balance sheet strength. They do not command expertise
in any of the lending segments, whereas BAF and a few large banks are already
operating on a large scale across diversified product segments and geographies.
Management believes individual lenders and lenders with tactful product
innovation and superior liability franchise will be able to stay in the business for
long. Even highly competitive segments like housing finance have witnessed a
few big exits in the past few years, indicating the need for dynamic product
offerings and balance sheet strength.
Account aggregator: Further boost for fintechs

Account aggregator (AA) enables individuals to provide consent to service
providers to access data for specific/need-based usage. This will smoothen
access to consumer data for financial lenders and service providers, and lower the
overall costs related to acquisition and design of products based on the needs of
individual customers. Though this is available for all lenders, we believe fintechs
will have more advantages as their entire business model is built around big data
analytics. Any additional data will strengthen further their lending practices and
widen their areas of operation.
Alternative areas of digital footprints increasing

India’s fintech landscape continues to evolve rapidly, in our view. While the
payments and alternative finance segments constituted more than ~90% of the
sector’s investment flows, there has been a gradual shift towards a more equitable
distribution across sectors.
Neo-banking: Neo-bank is a digital bank that operates entirely online with no
physical bank branches. Banking processes are conducted via mobile
applications. These banks save considerable operational costs, and these
benefits are transferred to their customers through cost-effective and more
personalised services.
• Digital Lending: India has witnessed low credit penetration, especially in the
retail and MSME segments, due to insufficient financial footprint. However,
fintech lenders are tapping into different types of data (including payments
history) which allows credit decisions in the absence of traditional data.
• Savings, wealth management, and insurance distribution: Indian
millennials are moving towards diversified investment products including
stocks, mutual funds, insurance, etc, and fintech platforms are making the
move more accessible, transparent, and cost-effective.
Going forward, as Indians become more digital savvy, the needs of consumers
are likely going to be met through fintech rather than traditional lenders.
12
Figure 16: Fintech have been present across diversified segments in India for over a decade
13
BAF to gain first-mover advantage for fintech platform

– more lenders to follow
Bajaj Finance is probably one of the first few formal lenders to adopt the fintech
platform, providing it a first-mover advantage. We believe BAF will have a first-
mover advantage on the customer acquisition front, which is a key strength of the
company. Also, we believe the formal lending segment realises the importance of
fintech and the company could likely see market share movements in future.
Hence, with fintech lenders gaining prominence, ~82% of traditional lenders in
India are increasing their collaborations in the next three to five years to stay
relevant in such fast-changing times.
Comparison to Paytm – BAF at an advantage

Paytm is a fintech specialising in digital payments, e-commerce and finance. It
offers mobile recharges, utility bill payments, travel, movies, events bookings as
well as in-store payments.
BAF is better placed than its peers across parameters
• Paytm, apart from one-off segments such as merchant payment
platform, has remained a second preferred option for users. Hence to
sustain its position and gain market leadership, the company has to
keep offering various discounts and cash back offers. This resulted in
wide losses for the company in the past, which we continue to expect at
least in the near to mid-term. In contrast, BAF is a profitable venture and
has a wide variety of profitable segments which provides more comfort.
• Post the super app launch, BAF competes directly with Paytm but with
a far superior customer base due to its existing presence in the formal
lending segment and in areas like consumer durables financing, etc, for
several years.
Paytm valuations will boost BAF’s valuations

As per reports on news website NDTV.com, Paytm wants to hit the market with its
IPO by the end of Oct 2021. According to its draft red herring prospectus (DRHP),
the company plans to raise Rs83bn through fresh equity issuance and another
Rs83bn through an offer for sale. The company proposes to use money raised
through fresh issuances to strengthen the Paytm ecosystem, including
acquisitions of consumers and merchants and providing them with greater access
to technology and financial services.
Considering the recent success of fintech listings in India, the Paytm IPO is
likely to command a premium to normal financial services businesses. We
believe BAF being the comparable peer and with a profitable business
model may witness a further spurt in stock price.
SBI Yono – Another fintech giant in the making

YONO (You Only Need One) is the State Bank of India’s (SBI) integrated digital
banking platform. It enables users to access a variety of financial services on a
mobile phone. It offers conventional mobile banking services such as opening
bank accounts, fund transfers, withdrawals, bill payments, and loans.
In a recent CNBC interview, SBI’s management highlighted that SBI was adding
over 70,000 customers per day to the platform and giving loans of over R0.7bn
per day (near US$10m). The pre-approved personal loan segment, with the
average loan size at Rs2.5 lakh, has grown to Rs240bn currently, attracting
thousands of leads and requests daily. Though not discussed externally, as per
news reports on news website Businesstoday.in, SBI is valuing the app at
US$40bn, which is a further boost for BAF’s valuations.
14
Banking licence – To opt for or not is the question?

The Reserve Bank of India (RBI) has been moderate in offering banking licenses
recently to streamline the overall lending process and improve the overall
regulatory framework. Investors have pondered over NBFCs surviving as sole
entities for long, and the same applies to BAF.
Despite BAF’s management clarifying repeatedly that it does not intend to become
a bank in the near term, the question remains open for many investors. An NBFC
becoming a bank comes with its own limitations such as mandatory priority sector
lending (PSL) norms, maintaining cash reserve ratio/statutory liquidity ratios, etc.
Considering the need for faster turnaround in its consumer lending businesses,
BAF requires flexibility in its operations, which we believe is more convenient as
an NBFC. Post recent RBI norms for NBFCs, we believe the regulator would be
comfortable with BAF increasing size and improving credit penetration. We believe
there is no near-term overhang of BAF becoming a bank.
We believe the current fintech transformation will also provide management

some time to judge the requirements of obtaining a banking licence. Another
issue related to the conversion to a bank is elevated operating expenses
during the initial period of the conversion, which are addressed during this
transformation. However, once BAF reaches a sizeable balance sheet,
conversion into a bank will become mandatory rather than a choice for
better regulatory framework and diversifying further into the product
offerings side.
15
Deep dive into lending segments –

Assessment of growth sustainability
As we gradually turn the corner and begin to heal from the scars of the Covid-19-
induced lockdown, we believe most of the large lenders have adequately provided
to absorb shocks from the damage. BAF continues to witness mom improvement
in volumes across its businesses. As per BAF management, Credit bureau
information is expected to be fully on stream by Nov 2021 which should further aid
credit momentum. Going forward, the company’s management estimates AUM
growth to normalise as risk metrics of new credit volumes across businesses are
better than pre-Covid-19 levels.
30% CAGR growth over next 3-5 years possible?

To assume the company comfortably grows at ~30% CAGR over the next three
to five years, despite a challenging environment and saturation in customer
additions, we have attempted a deep dive into the company’s various lending
segments to understand its current market share, drivers of growth and business
sustainability. However, first we should discuss the business’s moats.
The necessities required to manage growth momentum

• Product innovation is the key to augment superior client franchise (especially
banking customers). By consistently introducing new lending products, the
company can continue to attract New-to-Bajaj customers (including existing
banking customers).
• BAF remains the market leader in most consumer durables segments
(including digital and lifestyle products). Management admitted during various
earnings calls that it had lost market share during the pandemic due to a
conservative approach and absence of clear credit bureau data. However, it
remains confident it will make up the lost market share.
• The company’s cost of funds advantage, due to its superior liability franchise,
is visible over cost of funds movement of the company.
• Lastly, Covid-19 was the first event in which BAF’s management witnessed
cyclicality in the overall business portfolio. The company needs to be prepared
for more such events in future, mainly to be relevant to its customer base.
Figure 17: Fintech platform to aid BAF’s robust growth momentum
Consolidated AUM (LHS - Rs bn) growth (RHS - %)
5000 40.6% 45.0%

4500 36.9% 36.9% 40.0%
4000 35.0%
30.0% 3,326.1
3500 27.0% 30.0%
3000
22.2% 2,429.1 25.0%
2500
1,868.6 20.0%
2000
1,471.5 1,529.5
15.0%
1500 1,158.9
1000 824.2 10.0%
3.9%
500 5.0%
0 0.0%
FY18 FY19 FY20 FY21 FY22F FY23F FY24F
SOURCES: INCRED RESEARCH ESTIMATES, COMPANY REPORTS
16
Can BAF capture 5% of the Indian loans market?

Though it is more hypothetical, we believe BAF could gain 5% of the Indian
loan market in the next 10-15 years.
To do so we believe BAF will rely on its tech-based cross-sell model and
its strong distribution touch points in nearly every major market area and
retailer to increase the wallet size of its existing/new customer base by
offering new financial solutions for purchases on a consistent basis. BAF
is uniquely building a sticky customers base by relying on its database
(secondary data plus primary data) of customer behaviour.
To put things in perspective, HDFC Bank (one of largest unsecured lender
in India) formed ~4% of the Indian loan market in 2012 and is now at ~10%
of credit outstanding in India, more than doubling its market share in less
than a decade. Given BAF’s size is that of HDFCB, a decade ago, and due
to its increasing financial penetration in India on the back of the
digitization drives, BAF should be able to become ~2.5x its current size in
8-10 years. Given BAF currently forms ~1.5% of India’s loan market, it
should be able to achieve comfortably a ~5% market share over the next
10-15 years.
Durables Financing – Customer acquisition platform

The B2B Sales Finance business is where BAF credit tests its new customers.
BAF finds new customers, understands the customers repayment pattern, mines
data, and thereafter uses the data to cross sell. BAF has been the frontrunner in
the consumer finance space on the back of its popular and innovative interest-free
EMIs for consumer electronics, furniture and digital products in India.
BAF is present in 1,368 locations with 82,900+ active distribution points making it
the largest electronics, digital products and lifestyle products lender in the country.
BAF’s unique Existing Member Identification (EMI) card, with about 24.1m cards
in force, enables customers to avail of instant finance after the first purchase
across over 114,000 points of sale. In FY21, EMI cards enabled BAF to finance
over 8.7m purchases, across all sales finance categories.
Rising share of e-commerce platforms needs careful handling

Financing EMI card customers on e-commerce platforms for their various
purchases became an important business over the last two to three years. Unlike
the normal B2B model, BAF enters a subvention agreement with an online
platform provider instead of the vendor. Post this they mutually agree on the
products available for subvention and its quantum. BAF has expanded its online
relationships to 74 partners and financed over 1.7m transactions in FY21.
Rough estimates suggest that ~4-6% of BAF's AUM is contributed by online
platforms as BAF offered funding on its online platforms only to its existing
customers. However, management recently confirmed it had started issuing
EMI cards to new customers even on digital platforms. We expect this
platform to gradually become a key customer acquisition portal for the
company.
B2B sales finance – AUM share and growth assumptions

As the Indian middle class increases the ticket sizes of its digital and white goods
purchases, we believe BAF will become a beneficiary of its loyal customer base.
Post transaction data availability, we think underpenetrated segment like lifestyle
(fashion, travel, fitness, grocery, etc) may see a spurt with normalisation of
economic activities. We expect overall durable lending segment to grow at a
CAGR of ~11% over FY21-24F backed by new product innovation but keeping
intense competition in consideration.
17
Subvention route for Bajaj Finance

The RBI has specifically directed banks to avoid charging subvention income.
Historically, BAF managed to grow its portfolio at top speed without much
competition from banks. Recently a few banks (especially HDFC, ICICI and SBI)
started gaining traction in this space but the overall process favours BAF.
Figure 18: Subvention route for BAF
PRODUCT
Rs. 120/-
BAF collects
Rs. 12/-
(Subvention)
Customer pays
Rs. 10/- p.m.
Total Paid Rs120
Banks/credit cards remain major competition

The credit card businesses of a few large banks have been the biggest threat
for BAF’s B2B business. Though we notice a rise in the share of credit card
loans, BAF remains a preferred route for many borrowers considering its quicker
turnaround and easy processing. Also, not all credit card customers can avail
such loans, and so Bajaj remains a preferred choice for customers.
Subvention route for credit card loans
Though banks are not allowed to use the subvention route, some lenders have
taken an indirect route to convert this subvention as interest income.
Figure 19: Indirect route for subvention income for Banks
Product Price Bank Price

Rs. 120/- Rs. 132/-
Cashback
Rs. 12/-
(Subvention)
Customer pays
Rs. 11/- monthly
Interest Total Paid Rs132
Income Net Paid Rs120
Rs. 12/-
SOURCE: INCRED RESEARCH
Under the indirect route, the bank charges the subvention money additionally as
interest income from the customer, later providing the same amount as cash
back to the customer when the actual subvention is received. Thus, by making
the loan interest free for the customer, subvention is technically converted to
interest income. If the bank provides any further cash back to the customer (over
and above subvention) then the same would be charged to their profitability.
18
Auto Finance – The troubled legacy business

BAF is the captive financier for Bajaj Auto’s 2W/ 3W loans and witnessed ~24%
CAGR growth in AUM over FY18-21 in the Auto Financing business. BAF financed
the purchase of over ~0.6m motorcycles and about 59k three-wheelers in FY21,
constituting ~34% of Bajaj motorcycles and ~54% of three-wheelers domestically.
More recently, BAF witnessed a sharp surge in non-performing assets (NPAs)
especially in its 3W financing book amid Covid-19 lockdown disruptions for lower-
income borrowers. Also, there were reports on a news website Mumbailive.com
of political interventions in Pune and Mumbai for BAF’s 3-wheeler portfolio.
Management has highlighted its intentions of remaining cautious at least in the
near term, which will be reflected in the segment’s overall growth numbers.
Figure 20: BAF’s Auto Finance business’s asset quality trend has been worsening
Gross NPA (%) Net NPA (%) Calculated Coverage (%)
25 70.0
59.6 57.9 58.6
54.4 60.0
20 52.3 51.1 19.1
47.0 48.4
50.0
Coverage - RHS %
NPAs - LHS %
15 36.1
12.2 40.0
11.5
9.3 30.0
10
6.5 6.1
5.2 5.6 5.7 5.8 20.0
4.5 4.8
5 3.1
2.1 2.4 2.6 2.4 2.2 10.0
0 -
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22
Axis Title
Auto Finance – AUM share and growth assumptions

We are building in relatively slower growth momentum in the segment. BAF’s Auto
Finance AUM witnessed ~24% CAGR growth from FY18-21. Despite this, we
factor in ~13% CAGR growth from FY21-24F as management has highlighted the
need for caution.
Figure 21: BAF’s Auto Finance growth to remain slow amid cautious commentary
Auto Finance Business (LHS - Rsmn) growth (RHS - %)
300000 54.6% 60.0%
50.0%
250000
34.5% 40.0%
200000
25.0% 30.0%
20.0%
150000 20.0%
10.0%
100000
-5.0% 0.0%
-7.4%
50000
-10.0%
0 -20.0%
FY19 FY20 FY21 FY22F FY23F FY24F
19
B2C personal loans – the growth engine

BAF is one of the largest personal loan lenders in India, threatening the market
shares of most lenders, in our view. Though Covid-19 has disturbed the
momentum for personal unsecured loans, we expect the future trend to be healthy
amid rising demand and improved analytics.
Flexi personal loans – Brilliance or a blunder?

A Flexi Loan is a pre-approved loan limit based on the borrower’s credit rating. It
can be availed whenever needed and repaid early when the borrower has the
funds. The product was launched in 2013 for loans against property (LAP)
customers as a competitive tool against the overdraft (OD) / cash credit (CC).
There are two Flexi Loan variants.
• Flexi Saver, where amortisation starts on day one
• Hybrid Flexi works exactly like an overdraft or a cash credit account.
The company later extended this offering across all lending segments. In the last
seven years, this product has been profitable for the company despite loan losses
being marginally higher than term loans due to slower amortisation.
Our discussions with management, channel partners (DSAs) and users
suggest Flexi, a differentiated product, has stickiness among customers.
The feedback from customers (personal, professional, and business flexi
loans) has been encouraging.
B2C personal loans – AUM share and growth assumptions

With its cross-sell franchise expanding from ~17.8m customers as on 2QFY19 to
~38.3m as on Jun 2021 (cross-sell franchise at ~55-60% of total customer base),
we believe the potential for personal loans is considerable. With the database
maturing (more established track records) and as financial penetration increases,
we believe personal loans can continue its robust growth at ~32% CAGR from
FY21-24F.
Figure 22: Cross-sell personal loans remain key focus area for BAF
Consumer B2C Business (LHS - Rsmn) growth (RHS - %)
800000 60.0%
700000 50.0%
49.3%
600000
40.0%40.0%
35.9%
500000
30.0% 30.0%
400000 25.0%
20.0%
300000
10.0%
200000
100000 0.0%
-2.6%
0 -10.0%
20
Rural Finance – The encouraging prospective

BAF operates in the rural market with a unique hub-and-spoke model, spread
across 1,745 towns and villages with a retail presence across 24,000+ points of
sale. BAF’s typical rural customer is 'new to credit' but not 'new to bank'. B2B Rural
Financing (Durable/Digital) again remains a key introductory product offering and
based on the payment track record, the company cross sells other products.
Gold Finance – Yet another growth engine

BAF plans to ramp up its foray into rural India on the back of newer products
such as gold loans, personal loans, distribution of insurance policies, etc, to
achieve the dual objective of improving penetration. The gold loan portfolio
increased by nearly 100% in FY20 (before the Covid-19 pandemic began) on a
lower base and strong management focus shifting to a steady and insulated rural
economy. We expect gold loans to maintain a 50-75% CAGR till FY24F due to
low base.
Rural Finance – AUM share and growth assumptions

BAF can afford to undercut other NBFCs in these segments due to its platform
capability/ cross-sell strategy (cost of lending to an existing customer is way lower
than acquiring a new customer). Considering the rural market’s potential
combined with retail offerings we build in ~25% CAGR growth from FY21-24F.
Figure 23: Rural consumer durables loans are led by smart Figure 24: Fintech would lead to increased penetration for
phone sales personal loans in rural India, in our opinion
Rural Sales Finance AUM (LHS - Rsmn) Rural B2C AUM (LHS - Rsmn) growth (RHS - %)
growth (RHS - %)
300000 80.0%
80000 80.0%
70.0% 70.0%
250000
70.0%
67.2% 60.0%
60000 60.0% 200000
50.1% 50.0%
50.0%
150000 40.0%
40.0%
40000 40.0%
30.0% 30.0%
30.0% 100000 25.0%
24.6% 20.0%
20000 18.0% 20.0%
20.0%
15.0% 50000
10.9% 10.0%
8.0% 10.0%
0 0.0%
0 0.0%
SOURCES: INCRED RESEARCH ESTIMATES, COMPANY REPORTS SOURCES: INCRED RESEARCH ESTIMATES, COMPANY REPORTS
Bajaj Housing Finance – The leverage play

Bajaj Housing Finance (BHFL) is a 100% subsidiary of Bajaj Finance. BAF
management continues to de-risk its otherwise dominantly unsecured portfolio
through lower yielding, secured housing loans. The company’s mortgage portfolio
witnessed ~28% CAGR from FY18-21. The company offers housing products
through its 100% subsidiary Bajaj Housing Finance Limited.
As on 1QFY22, 57% of the housing portfolio belonged to home loans, 22%
to LAP, 12% to Lease Rental Discounting (LRD) and 4% to developer finance.
The company has also ventured into the rural housing finance business
which now forms ~4% of its portfolio.
Home loans
BHFL offers home loans ranging from Rs3m-15m to mass affluent salaried
customers across India. Within home loans, ~86% goes towards salaried
customers, 11% to the self-employed and 4% to professionals.
21
We believe this segment offers considerable untapped opportunities for BAF in

the absence of several other large housing finance companies (HFCs), under-
penetration and a data mine from its cross-sell franchise.
Loan against property
BAF offers loans against property to the mass affluent – SMEs, MSMEs, self-
employed individuals and professionals against mortgages of their residential and
commercial properties across India. We believe NBFCs with strong parentage,
low cost of funds and data analytics are poised to make the most of this secured
asset class.
BHFL – AUM share and growth assumptions

We expect BAF to maintain its portfolio de-risking strategy amid an elevated share
of otherwise unsecured-retail portfolio. We estimate the overall mortgage portfolio
to grow at a CAGR of ~34% over FY21-24F due to a lower base effect and
improving demand for housing.
Figure 25: Expect major surge in HFC portfolio amid favourable demand scenario
Mortgages (LHS - Rsmn) growth (RHS - %)
1400000 50.0%
45.0%
1200000 43.3%
40.0%40.0%
1000000 36.3% 35.0% 35.0%
30.0%
800000 28.0%
25.0%
600000
20.0%
400000 15.0%
10.0%
200000 7.4%
5.0%
0 0.0%
Bajaj Financial Securities (BFinsec) – New venture

Bajaj Financial Securities Ltd. (BFinsec), a 100% subsidiary of BFL, is registered
with SEBI as a stockbroker and depository participant. BFinsec started its
business operations in Aug 2019 with a strategy to ring fence Loan Against
Securities (LAS) customers of BAF by providing them a full suite of investment
products and services.
The Loan Against Securities business offers medium- and short-term financing
against shares, bonds, mutual funds, insurance policies and deposits to
customers across retail, high net worth individual (HNI) and promoter categories.
The business is operational through physical branches and offers financing
solutions through a digital medium to expand its reach to a larger number of cities
and customers. As on Mar 2021, the company had a base of ~42,900 customers.
22
Commercial Lending – SME business

Commercial lending consists of loans to the Financial Institutions Group, working
and growth capital loans to auto component manufacturers and the light
engineering industry, loans to the specialty chemical and pharma industry and
other mid-market companies. The business focuses on acquiring quality corporate
customers, deepening relations with them and ensuring value add through
offerings of varied products in the form of working and growth capital loans.
Figure 26: SME lending to witness boost post fintech data Figure 27: Expect surge in demand for commercial business
SME Lending Business (LHS - Rsmn) Commercial Lending (LHS - Rsmn) growth (RHS - %)
growth (RHS - %)
250000 40.0%
600000 45.0% 36.5%
35.0% 35.0%
35.0%
550000 40.0%
40.0% 200000
500000 37.8% 29.4% 30.0% 30.0%
450000 35.0%
400000 30.0% 30.0% 150000 25.0%
350000 25.0% 20.0%
25.0%
300000 23.3%
250000 20.0% 100000 15.0%
13.1%
200000 15.0%
10.0%
150000 10.0% 50000
100000 5.0%
50000 4.1% 5.0%
0 0.0% 0 0.0%
FY19 FY20 FY21 FY22F FY23F FY24F FY19 FY20 FY21 FY22F FY23F FY24F
SOURCES: INCRED RESEARCH ESTIMATES, COMPANY REPORTS SOURCES: INCRED RESEARCH ESTIMATES, COMPANY REPORTS
Gradual value unlocking likely over mid to long term

Though both of BAF’s subsidiaries are currently in the development stage, we
believe they will aid the company’s overall growth. However, we expect gradual
value unlocking from these companies either through separate listings or stake
sales to investors. BAF’s management maintains similar corporate government
standards for all its subsidiaries, likely commanding valuation premiums for any
stake divestment in future, in our view.
23
Superior liability franchise supports margin

The ILFS crisis unveiled the underbelly of high ROAs at NBFCs and asset and
liabilities (ALM) mismatches. BAF was caught at the right end of this crisis due to
its low duration lending and longer duration borrowing, ALM-matched balance
sheet, and appetite for growth.
Diversified borrowing mix keeps cost of funds in check

Not only did BAF succeed in winning market share, it went on to strengthen and
diversify its liability franchise as debt investors turned away from lending to
competing NBFCs. BAF has successfully mitigated all liability side risks by being
well diversified across borrowing sources.
Figure 28: BAF’s liability profile diversified with rising deposits Figure 29: BAF’s liability profile as at Jun 2021
Short Term
Bank loans Debentures Borrowings,ECB, 4.0%
6.0%
Fixed deposits Sub-ordinated debt
Sub-
Short Term Borrowings ECB ordinated Bank loans,
debt, 3.0% 30.0%
0.5
0.45
0.4 Fixed
deposits,
0.35 21.0%
0.3
0.25
0.2
0.15
0.1
0.05
0
Debentures,
FY17 FY18 FY19 FY20 FY21
36.0%
SOURCES: INCRED RESEARCH, COMPANY REPORTS SOURCES: INCRED RESEARCH, COMPANY REPORTS
Lower interest rate scenario to support margin expansion

As global interest rates remain tepid, we believe the cost of funds for a strong
parentage/ well-managed NBFC like BAF will increasingly fall while the current
Covid-19 pandemic-induced financial crises would leave unsecured retail loans
rates static/ relatively expensive. This would not only enable BAF to be more
competitive in its rate structure and win market share, but also boost margin and
lead to high ROEs in a low cost of equity (COE) environment.
Robust rating and ALM profile

BAF enjoys the highest credit rating of AAA/stable from CRISIL, ICRA, CARE and
India Rating for its long-term debt program and A1+ from CRISIL, ICRA and India
Ratings for its short-term debt. The company’s deposits are rated the highest with
credit rating of FAAA/Stable from CRISIL and MAAA (Stable) from ICRA as on
Jun 2021.
BFL’s asset and liabilities profile (ALM) depicts its prudent approach to its ALM
management. BAF has maintained significantly positive ALM positions across
buckets as against 15% negative ALM position permissible under current RBI
regulations.
Figure 30: BAF manages surplus liquidity across buckets as on Jun 2021
Rs m >15 days >30 days >3M >6M >1Y >3Y >5Y
Cumulative Total Inflows 2111 2993 4711 7163 9985 15763 18400
Cumulative Total Outflows 1010 1153 1749 2559 5685 12318 13880
Cumulative (Mismatch)/Surplus 1101 1840 2962 4604 4300 3445 4520
24
Asset quality – Painful past; better future

BAF has a strategy of acquiring and cross-selling to manage cost and portfolio
risk, based on the axiom that an existing customer poses significantly lower credit
risk than a new customer. This ensures lower risk across its portfolios.
Elevated defaults – auto finance segment bleeding heavily

During 1QFY22, BAF reported weak profitability trends amid a sharp rise in
NPAs/provisions. Gross non-performing assets (GNPA) jumped to ~2.96% vs.
~1.79% in 4QFY21, while net non-performing assets (NNPA) rose to ~1.46% vs.
~0.75% in 4QFY21. BAF had Rs17.5bn in provisions in 1QFY22; but PCR dipped
to 51% vs. 58% in 4QFY21.
Figure 31: BAF’s asset quality trend worsened recently
Stage 3 assets (LHS - %) Coverage Ratio (RHS - %)
5.0% 65.0% 70.0%

60.0% 61.0% 60.0% 60.0% 59.0% 58.0% 58.0%
57.0%
60.0%
4.0% 51.0%
50.0%
2.87% 2.96%
3.0%
40.0%
1.79% 30.0%
2.0%
1.54% 1.60% 1.61% 1.61% 1.61%
1.40% 1.34%
20.0%
1.0%
10.0%
0.0% 0.0%
Mar'19 Jun'19 Sep'19 Dec'19 Mar'20 Jun'20 Sept'20 Dec'20 Mar'21 Jun'21
The auto finance business was affected severely as almost a fifth of its book
turned into NPAs followed by a surge in slippages in the personal loan segment.
BAF maintains Rs4.8bn of management overlay provisions and in its earnings call
guided for overall provisions of Rs42bn-44bn for FY22. However, uncertainties
about the third Covid wave persist.
We have been concerned by BAF's asset quality trends, elevated write-offs
(Rs9bn in 1QFY22, Rs20bn in 4QFY21, Rs23.4bn in 3QFY21) and
restructured book (Rs12.9bn) placed under stage 2 assets. In case of any
fresh lockdowns in the wake of the third wave of Covid, BAF may see a
severe impact on profitability. However, we are optimistic about BAF's
business transformation journey, though we are watching for headwinds on
the asset quality front.
Best in class disclosure provides greater confidence

BAF management has been most transparent about disclosures and providing
maximum texture especially on NPA disclosures for many years. From providing
segment-wise NPAs to bucket-wise default data, BAF management always has
been a step ahead of its peers in providing a clearer picture to its investors.
Though this is more of a qualitative aspect, we recognize this as a key factor for
remaining confident towards the overall asset quality trends of the company.
25
Key assumptions
• We factor in ~30% CAGR growth in AUM for FY21-24F amid weak momentum
in FY22 as the Covid wave 2-related lockdowns impacted the demand outlook
during 1HFY22 though a pickup is likely in 2HFY22. However, we factor in
normalisation in growth from FY23F, aided by BAF’s transformation journey.
• On the lending segment front, we assume flexi loans will remain a key growth
driver across segments including personal, rural and SME loans. We also
factor in +30% CAGR AUM growth in subsidiaries, like the mortgages and
securities businesses, considering the improved demand scenario. We build
in subdued growth trends for durable loans and auto loans amid rising
competition and management’s cautious stance.
Figure 32: BAF’s AUM growth momentum to pick up post FY22F
Consolidated AUM (LHS - Rs bn) growth (RHS - %)
5000 40.6% 45.0%

4500 36.9% 36.9% 40.0%
4000 35.0%
30.0% 3,326.1
3500 27.0% 30.0%
3000
22.2% 2,429.1 25.0%
2500
1,868.6 20.0%
2000
1,471.5 1,529.5
15.0%
1500 1,158.9
1000 824.2 10.0%
3.9%
500 5.0%
0 0.0%
• We factor in ~29% CAGR growth in net interest income (NII) which is in-line
with AUM growth, aided by prevailing lower borrowing rates and the gradual
unwinding of existing liquidity with normalisation of activities.
Figure 33: BAF’s NII to witness steady momentum with steady margins
Net interest income (LHS - Rs bn) Margins (RHS - %)

12.4%
450 12.0% 13.0%
10.9% 10.9%
400 10.3% 10.5%
11.0%
9.3% 335.3
350
9.0%
300
260.4
250 7.0%
205.4
200 5.0%
135.1 139.0
150 118.8
3.0%
88.3
100
1.0%
50
0 -1.0%
• BAF has been consolidating operating expenses over the past few quarters,
which correlate to the dips in revenues during the recent pandemic. We
believe cash back and rewards attached to the payments business will attract
new customers, keeping the overall expense trajectory elevated.
26
• We expect BAF’s existing customer base and management’s guidance for

coupon-based reward to ensure smoothening of expenses over the mid to
long term. Expect cost to average assets to remain at ~300bp from FY22-24F.
Figure 34: BAF’s cost ratios to improve gradually
Cost to Income (LHS - %) Cost to Average Assets (RHS - %)
75.0% 5.0% 5.5%
65.0%
4.0% 3.9% 4.5%
55.0% 3.5%
3.4%
3.2% 3.0% 3.5%
45.0% 41.8%
35.3% 33.5%
35.0% 30.7% 30.4% 29.9% 2.5%
27.9%
25.0%
1.5%
15.0%
0.5%
5.0%
-5.0% FY18 FY19 FY20 FY21 FY22F FY23F FY24F -0.5%
• We have been concerned over BAF's asset quality trends, along with elevated
write-offs (Rs9bn in 1QFY22, Rs20bn in 4QFY21 and Rs23.4bn in 3QFY21)
and restructured book (Rs12.9bn) placed under stage 2 assets. In case of any
fresh lockdowns in the wake of a third wave of Covid, BAF may see a severe
impact on profitability. However, with normalisation of activities, we expect
BAF to see improved trends backed by stringent underwriting and a well-
equipped collection mechanism. We factor in a credit cost decline in FY22F
compared to FY21 and overall credit cost normalising by FY24F.
Figure 35: BAF’s asset quality trends improve
Net Stage 3 NPAs (%) Credit Costs (%)
5.0%
4.0%
4.0%
3.0%
2.8%
3.0%
2.2%
2.0%
2.0% 1.5%
1.5%
1.0%
0.0%
• Fee-based income has been the key parameter of BAF’s revenue through its
cross-sell franchise which we expect to continue in the coming future as well.
Though we do not factor in a major surge in fee income for now, the
company’s new venture in the payments business and a positive surprise on
fee income are likely in the near future.
• We factor in ~49% CAGR growth in profit from FY21-24F backed by low base
effect, decline in provisions along with steady trends in net interest income.
We expect the company’s RoA trajectory to improve to ~4.6% by FY24F
compared to ~2.6% in FY21 and RoE to improve to ~26% by FY24F against
~12.8% in FY21.
27
Figure 36: Return ratio profile to improve
RoAE (LHS - %) RoAA (RHS - %)
40.0% 4.5% 5.0%

4.5%
4.2% 4.5%
35.0%
3.8%
3.6% 3.6% 4.0%
30.0%
25.2% 3.5%
25.0% 22.5% 23.0%
21.0% 2.6% 3.0%
20.2% 20.3%
20.0% 2.5%
15.0% 12.8% 2.0%

1.5%
10.0%
1.0%
5.0% 0.5%
0.0% 0.0%
Where we stand compared to Bloomberg consensus?

Considering our positive view on the overall fintech transformation resulting in a
surge in revenue backed by AUM growth and rationalisation of cost structure, our
estimates for BAF’s profitability are far higher than those of Bloomberg consensus.
However, we expect street numbers to rise post normalisation of economic
activities and surge in credit demand. We remain more optimistic than consensus.
The same has been reflected in the table below.
Figure 37: Our and Bloomberg consensus earnings estimates
Pre-Provisioning Profit (Rs bn) PAT (Rs bn)
Consensus Est InCred Est Variance % Consensus Est InCred Est Variance %
FY22F 135.1 156.6 15.9% 71.0 81.5 14.7%
FY23F 166.6 194.7 16.9% 101.4 110.1 8.6%
FY24F 204.4 253.9 24.2% 130.0 146.7 12.8%
SOURCES: INCRED RESEARCH ESTIMATES, BLOOMBERG
28
Outlook and valuation

• BAF has never been an attractive stock as investors in general have preferred
to pay a premium not only for growth acceleration in balance sheet and
revenues but also for certainty of growth and pre-eminent management. The
company’s transformation journey will add a new dynamic to its business
operations, in our view.
• Our valuation of Bajaj Finance is based on sum of total parts (SOTP),
valuing the lending and fintech businesses separately.
Lending Business
• We value BAF’s lending business on an excess return on equity (ERoE) basis
with risk-free rate at 6% which is equivalent to SBI’s 5-year fixed deposit rate
and market risk premium of 6% each and beta of 1. Accordingly, the lending
business fetches a target price contribution of Rs7,500 for Mar 2023F,
corresponding to ~7x P/B on Mar 2024F basis.
• We believe BAF should be able to multiply to ~2.5x its current size in 8-10
years. Given BAF currently forms ~1.5% of the India loan market, it should be
able to achieve a 5% market share over the next 10-15 years.
Fintech Business
• Recent dealings of fintech have fetched super premium valuations in India
primarily because credit penetration in India remains low with enormous
growth opportunities especially in rural and semi urban India. Since the focus
of this fintech remains on increasing credit penetration in India, overall
customers are of low profiles who have generally been ignored by formal
banking channels.
• As Paytm prepares for its maiden venture in India’s equity markets, we think
its valuation premium would be the best benchmark to compare BAF’s revised
valuations and justify the stock’s premium. However, Paytm’s presence in the
lending segment is negligible, while BAF’s lending business needs to be
evaluated separately.
• We are benchmarking, BAF’s fintech business with ‘Paytm’ valuations
considering similarity in operations. Though Paytm is a loss-making entity with
negligible revenues, it is a key player in Indian payments market with
prominence in UPI transfers and wallet businesses.
• India has witnessed a sizeable rise in UPI transfers. As per data published by
NPCI, overall UPI volumes has increased from 0.9bn transactions in FY18 to
22.3bn transactions in FY21 whereas in value terms the same has increased
from Rs1.1tr in FY18 to Rs41tr in FY21. Industry experts expect UPI
transactions to reach US$1tr by FY23. We assume transaction volumes will
grow at a similar pace.
• As per news website Business Standard, Paytm’s management is currently
eyeing IPO valuations at Rs2.2tr with an average market share of ~10% in
UPI in volume terms based on National Payment Corporation of India (NPCI)
data. Considering BAF’s ability to utilise its existing customer pool of ~50.5m
customers along with leads maintained due to NPCI’s restriction on new
customer additions for existing players, we assume BAF will reach ~5% of UPI
market share by FY23F.
• Paytm being a loss-making entity with payments as the primary business
operations, we are weighting its IPO valuations to Bajaj’s transactions
business. As we are assuming BAF would reach ~5% of the market share in
UPI transaction volumes by FY23F, comparing the same to Paytm’s IPO
valuations and market share of ~10%, we value BAF’s transaction business
at Rs2,150 per share for Mar 2023F.
29
Sum of parts (SOP)
• We are of the opinion that BAF needs to be valued on a sum-of-parts basis,

whereby the lending and fintech businesses should be valued separately. The
company already runs profitable lending business whereas transformation to
Fintech mode would fetch more avenues of growth.
• We value BAF’s lending business on an excess return on equity (ERoE) basis

with risk free rate at 6% and assuming market risk premium at 6%. Thus, we
are arriving at a TP contribution of Rs7,500, ~7x P/B on Mar-24F.
• We benchmark BAF’s fintech business with Paytm’s current valuations

considering the similarities in their areas of operations. We assume BAF will
reach ~5% of UPI market share by FY23F and weight it against Paytm’s
valuations, which values BAF’s transactions business at Rs2,150 for Mar-23F.
• We like BAF based on its superior data analytics capabilities which has
allowed the company to create strong cross-sell network as well as making it
capable enough to maintain the strong customer addition momentum. As the
company is moving a step forward towards being a Fintech, we believe that it
will provide access to a transactions data mine at zero cost and will be a
cornerstone of product innovation for the company. We initiate coverage on
BAF with an Add rating.
• Our sum-of-parts-based (SOP) TP of Rs9,650 will correspond to ~40x FY24F

P/E with consolidated RoA of ~4.6% and RoE of ~26% for FY24F.
Figure 38: Sum-of-parts valuation for Bajaj Finance

Particulars Stake (%) Value (Rs m) Rs per share Valuation methodology
NBFC - Lending Business 100% 45,41,219 7,550 Excess Return on RoE - ~7x P/B FY24F (considering 6% risk-free rate, 6% risk premium)
Fintech - Transaction Services 100% 13,14,000 2,150 5% market share in UPI transaction volumes
Value of the company 59,69,242 9,650
SOURCE: INCRED RESEARCH ESTIMATES
• India’s consumer discretionary companies trade at ~32x-50x FY24F P/E. BAF

has always been looked at as a pure play India consumption story, with a
diversified product and liability profile. This, coupled with BAF’s business
transformation journey, justifies its premium valuation in our view. It is
pertinent to note that BAF has traded at 5x-8x one-year forward P/B since Apr
2017.
BAF also owns ~19.9% stake in Bajaj Finserv Direct Limited (BFSD) which
is a Bajaj marketplace platform. Currently we are not assigning any value
for the same, but it could be a major value driver for the company in future.
• The company’s transformation journey will add a new dynamic to its business
operations. On its successful completion, BAF would be the only lender in
India with a traditional background, data analytic capabilities and the smooth
product offerings of a fintech.
30
Historical valuation band for Bajaj Finance

Figure 39: 1-year forward P/E (x) band with standard deviation Figure 40: 1-year forward P/B (x) band with standard deviation
PE Average +1 Stdev PB Average +1 Stdev
-1 Stdev +2 Stdev -2 Stdev -1 Stdev +2 Stdev -2 Stdev
120 16
14
100
12
80
10
60 8
6
40
4
20
2
0 0
31-03-2015
31-07-2015
30-11-2015
31-03-2016
31-07-2016
30-11-2016
31-03-2017
31-07-2017
30-11-2017
31-03-2018
31-07-2018
30-11-2018
31-03-2019
31-07-2019
30-11-2019
31-03-2020
31-07-2020
30-11-2020
31-03-2021
31-07-2021
31-03-2015
31-07-2015
30-11-2015
31-03-2016
31-07-2016
30-11-2016
31-03-2017
31-07-2017
30-11-2017
31-03-2018
31-07-2018
30-11-2018
31-03-2019
31-07-2019
30-11-2019
31-03-2020
31-07-2020
30-11-2020
31-03-2021
31-07-2021
SOURCES: INCRED RESEARCH, BLOOMBERG SOURCES: INCRED RESEARCH, BLOOMBERG
Peer Comparison – Payment Services

Figure 41: For payment services, we do not have listed peers in India, so we have identified US-based payment services companies
Closing Target Mcap (US$ bn) Revenue (US$m) PAT (US$m) P/Sales
Global Peers BBG ticker Rating
Price (LC) Price Current CY21F CY22F CY21F CY22F CY21F CY22F
Payment Companies
PagSeguro PAGS US NR 45.5 NA 18.6 1,926.0 2,561.0 312.0 509.0 9.7 7.3
Paypal PYPL US NR 262.1 NA 324.7 25,760.0 31,656.0 5,599.0 6,943.0 12.6 10.3
Shift4 Payments FOUR US NR 79.1 NA 6.8 513.0 642.0 49.0 95.0 13.3 10.6
Global Payments Inc GPN US NR 157.0 NA 47.6 7,735.0 8,603.0 2,419.0 2,818.0 6.2 5.5
Adyen ADYYF US NR 2,882.9 NA 96.7 6,272.0 7,595.0 538.0 765.0 15.4 12.7
Financial Services
Affirm AFRM US NR 123.0 NA 31.6 1,204.0 1,713.0 (315.0) 226.0 26.2 18.4
SoFi SOFI US NR 16.2 NA 12.0 961.0 1,440.0 (391.0) (9.0) 12.5 8.3
Merchant Services
Nuvei NVEI US NR 122.4 NA 20.8 703.0 917.0 232.0 294.0 29.6 22.7
Square SQ US NR 238.3 NA 117.6 19,012.0 22,142.0 1,009.0 1,222.0 6.2 5.3
Average 75.2 7,120.7 8,585.4 1,050.2 1,429.2 14.6 11.2
Bajaj Finance BAF IN BUY 7,736.7 9,650 62.6 4,407.7 5,499.1 1089.6 1473.1 14.2 11.4
NOTE: ALL ESTIMATES FOR NOT RATED COMPANIES ARE BASED ON BLOOMBERG CONSENSUS ESTIMATES
SOURCES: BLOOMBERG, INCRED RESEARCH ESTIMATES, COMPANY REPORTS. PRICED AS AT 06 OCT 2021
Peer Comparison – Lending business

Figure 42: For lending business, most large private and PSU banks would be competitors
Closing Target Mcap (US$ bn) Revenue (US$ bn) PAT (US$ b) P/Sales
Indian Peers BBG ticker Rating
Price (LC) Price Current FY22F FY23F FY22F FY23F FY22F FY23F
Lenders
HDFC Bank HDFCB IN NR 1,614.9 NA 119.2 13.7 15.8 4.9 5.9 8.7 7.5
ICICI Bank ICICIBC IN NR 689.5 NA 63.7 6.1 7.3 2.9 3.6 10.4 8.7
Kotak Mahindra Bank KMB IN NR 1,955.8 NA 51.7 5.8 6.6 1.4 1.7 8.9 7.8
HDFC Limited HDFC IN NR 2,751.0 NA 66.3 2.6 8.3 2.4 2.8 25.5 8.0
SBI SBIN IN NR 457.2 NA 54.4 32.8 36.7 5.3 6.4 1.7 1.5
Average 71.1 12.2 14.9 3.4 4.1 11.1 6.7
Bajaj Finance BAF IN BUY 7,736.7 9,650 62.6 4.4 5.5 1.1 1.5 14.2 11.4
NOTE: ALL ESTIMATES FOR NOT RATED COMPANIES ARE BASED ON BLOOMBERG CONSENSUS ESTIMATES
SOURCES: BLOOMBERG, INCRED RESEARCH ESTIMATES, COMPANY REPORTS. PRICED AS AT 06 OCT 2021
31
Risks to our investment thesis

• Regulatory risks: In general, NBFCs encounter relatively softer RBI
regulations than banks, mainly as they drive the government’s financial
inclusion targets and increase credit penetration in India. However, RBI or any
other government regulator can impose stringent norms to keep the entire
lending and payments chain in check. This is the uncertain, yet most probable,
risk in the medium term.
• Demand disruption due to lockdowns: Retail lending is a key focus area
for BAF, and any disruption created by pandemic-induced lockdowns would
be a risk to growth and profitability, in our view.
• Key management risk: This is the biggest risk the company faces. The
Managing Director and CEO Mr Rajeev Jain and the promoter Mr Sanjiv Bajaj
were instrumental in turning around the company over the past few years. Any
change in the company’s management or promoter structure could severely
impact its growth and earnings profile in future, in our view.
• Successful completion of Paytm IPO is necessary: Our valuation
methodology is clearly dependent on Paytm’s valuation. The company is likely
to come out with an IPO in the coming months and its successful execution
will be important to justify BAF’s valuation as well.
• Underwriting risks: Underwriting refers to the process that a large financial
service provider (bank, insurer, investment house) uses to assess the
eligibility of a customer to receive their products like equity capital, insurance
or credit to a customer.
• Interest rate risk: Changes in interest rates remain the key macro risk which
needs to be monitored for all lenders as it impacts margins as well.
• Credit risk: It mainly arises due to the uncertainty of a counterparty's (called
an obligor's or credit's) ability to meet its obligations.
32
Figure 43: Key management profiles as on Jun 2021

Name Designation Background
Sanjiv is Chairman of Bajaj Finance and MD and Chairman of Bajaj
Finserv. He belongs to the promoter family and has headed the
Sanjiv Bajaj Chairman
financing arm of the Bajaj Group since 2007. He is well-qualified
professionally and has rich experience in managing talent.
Rajeev is the Managing Director of Bajaj Finance. He has turned a
captive finance company into India’s most diversified NBFC, delivering
assets, deposits, payments, insurance, investments and broking
Rajeev Jain Managing Director
products to consumer, MSME, commercial and rural consumers. Under
his leadership, Bajaj Finance has delivered profit CAGR of 51% and
asset growth of 37% CAGR over the past 14 years.
Sandeep is the Chief Financial Officer and Head of Business Re-
Sandeep Jain CFO
engineering and Investor Relations.
Figure 44: Shareholding as at Jun 2021
Public, 9.9%
Domestic Mutual
Funds, 6.3%
Corporates, 3.8%
Promoter Group,
56.0%
FIIs & FPIs,
24.0%
33
BY THE NUMBERS
P/BV vs ROE 12-mth Fwd FD Core P/E vs FD Core

15.0 35.0% EPS Growth
100.0 90.0
12.0 28.0%
80.0
60.0
9.0 21.0%
60.0
30.0
6.0 14.0% 40.0
3.0 7.0% 0.0

20.0
0.0 0.0% 0.0 -30.0

May-19 May-20 May-21 May-22 May-23 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs)
Profit & Loss

(Rsm) Mar-20A Mar-21A Mar-22F Mar-23F Mar-24F
Net Interest Income 135,090 139,043 185,871 233,786 301,744
Total Non-Interest Income 34,034 33,647 39,310 44,161 50,537
Operating Revenue 169,124 172,691 225,182 277,947 352,281
Total Non-Interest Expenses (25,491) (24,987) (32,483) (40,603) (48,724)
Pre-provision Operating Profit 112,516 119,608 156,630 194,707 253,917
Total Provision Charges (39,295) (59,686) (47,573) (47,274) (57,551)
Operating Profit After Provisions 73,221 59,923 109,057 147,433 196,366
Pretax Income/(Loss) from Assoc.
Operating EBIT (incl Associates) 73,221 59,923 109,057 147,433 196,366
Non-Operating Income/(Expense)
Profit Before Tax (pre-EI) 73,221 59,923 109,057 147,433 196,366
Exceptional Items
Pre-tax Profit 73,221 59,923 109,057 147,433 196,366
Taxation (20,584) (15,724) (27,591) (37,301) (49,681)
Consolidation Adjustments & Others
Exceptional Income - post-tax
Profit After Tax 52,637 44,198 81,465 110,132 146,685
Minority Interests
Pref. & Special Div
FX And Other Adj.
Net Profit 52,637 44,198 81,465 110,132 146,685
Recurring Net Profit
Balance Sheet Employment

Gross Loans/Cust Deposits
Avg Loans/Avg Deposits
Avg Liquid Assets/Avg Assets 88.6% 86.8% 87.4% 88.1% 88.6%
Avg Liquid Assets/Avg IEAs 99.4% 100.0% 101.0% 100.6% 99.4%
Net Cust Loans/Assets 1.1% 1.0% 1.0% 1.0% 1.0%
Net Cust Loans/Broad Deposits
Equity & Provns/Gross Cust Loans 1,784.7% 2,245.1% 2,031.8% 1,880.0% 1,770.9%
Asset Risk Weighting
Provision Charge/Avg Cust Loans 3.06% 4.09% 2.84% 2.20% 2.00%
Provision Charge/Avg Assets 2.72% 3.55% 2.46% 1.93% 1.78%
Total Write Offs/Average Assets
34
BY THE NUMBERS…cont’d
Balance Sheet
Total Gross Loans 1,431,874 1,483,313 1,871,307 2,432,561 3,328,934
Liquid Assets & Invst. (Current)
Other Int. Earning Assets
Total Gross Int. Earning Assets 1,431,874 1,483,313 1,871,307 2,432,561 3,328,934
Total Provisions/Loan Loss Reserve
Total Net Interest Earning Assets 1,431,874 1,483,313 1,871,307 2,432,561 3,328,934
Intangible Assets
Other Non-Interest Earning Assets 1,062 3,098 4,647 6,971 10,457
Total Non-Interest Earning Assets 22,741 26,192 39,288 58,932 88,399
Cash And Marketable Securities 13,827 21,762 48,331 25,083 1,457
Long-term Investments 175,472 184,002 199,792 235,427 293,060
Total Assets 1,643,914 1,715,269 2,158,718 2,752,003 3,711,849
Customer Interest-Bearing Liabilities
Bank Deposits
Interest Bearing Liabilities: Others
Total Interest-Bearing Liabilities 1,298,064 1,316,454 1,664,937 2,140,245 2,930,597
Banks Liabilities Under Acceptances
Total Non-Interest Bearing Liabilities 22,574 29,631 59,426 89,297 141,445
Total Liabilities 1,320,637 1,346,085 1,724,363 2,229,543 3,072,042
Shareholders Equity 323,276 369,184 434,355 522,460 639,807
Minority Interests
Total Equity 323,276 369,184 434,355 522,460 639,807
Key Ratios
Mar-20A Mar-21A Mar-22F Mar-23F Mar-24F
Total Income Growth 13.7% 2.9% 33.7% 25.8% 29.1%
Operating Profit Growth 18.8% 2.8% 30.5% 23.2% 27.9%
Pretax Profit Growth (12%) (18%) 82% 35% 33%
Net Interest To Total Income 79.9% 80.5% 82.5% 84.1% 85.7%
Cost Of Funds 8.13% 7.20% 7.00% 7.00% 7.20%
Return On Interest Earning Assets 17.9% 16.0% 17.3% 17.1% 16.8%
Net Interest Spread 9.75% 8.80% 10.30% 10.05% 9.61%
Net Interest Margin (Avg Deposits)
Net Interest Margin (Avg RWA)
Provisions to Pre Prov. Operating Profit 35% 50% 30% 24% 23%
Interest Return On Average Assets 9.36% 8.28% 9.60% 9.52% 9.34%
Effective Tax Rate 28.1% 26.2% 25.3% 25.3% 25.3%
Net Dividend Payout Ratio 13.8% 13.6% 20.0% 20.0% 20.0%
Return On Average Assets 3.65% 2.63% 4.21% 4.49% 4.54%
35
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(and their respective directors, associates, connected persons and/or employees) shall not be liable in any manner whatsoever for any consequences
(including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof. In
particular, CGS-CIMB disclaims all responsibility and liability for the views and opinions set out in this report.
Unless otherwise specified, this report is based upon reasonable sources. Such sources will, unless otherwise specified, for market data, be market
data and prices available from the main stock exchange or market where the relevant security is listed, or, where appropriate, any other market.
Information on the accounts and business of company(ies) will generally be based on published statements of the company(ies), information
disseminated by regulatory information services, other publicly available information and information resulting from our research. Whilst every effort is
made to ensure that statements of facts made in this report are accurate, all estimates, projections, forecasts, expressions of opinion and other
subjective judgments contained in this report are based on assumptions considered to be reasonable as of the date of the document in which they are
contained and must not be construed as a representation that the matters referred to therein will occur. Past performance is not a reliable indicator of
future performance. The value of investments may go down as well as up and those investing may, depending on the investments in question, lose
more than the initial investment. No report shall constitute an offer or an invitation by or on behalf of IRSPL and its affiliates/group companies and/or
CGS-CIMB or their respective affiliates (including CGIFHL, CIMBG and their respective related corporations) or IRSPL and its affiliates/group
companies, to any person to buy or sell any investments.
By IRSPL producing this report for CGS-CIMB, IRSPL has confirmed to CGS-CIMB that the opinions expressed are based on information it believes
to be accurate and complete and obtained through reliable public or other non-confidential sources at the time made. (Information barriers and other
arrangements may be established where necessary to prevent conflicts of interests arising. However, the analyst(s) may receive compensation that is
based on his/their coverage of company(ies) in the performance of his/their duties or the performance of his/their recommendations. In reviewing this
report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional
information is, subject to the duties of confidentiality, available on request.
The report is not a “prospectus” as defined under Indian Law, including the Companies Act, 2013, and is not, and shall not be, approved by, or filed or
registered with, any Indian regulator, including any Registrar of Companies in India, SEBI, any Indian stock exchange, or the Reserve Bank of India.
No offer, or invitation to offer, or solicitation of subscription with respect to any such securities listed or proposed to be listed in India is being made, or
intended to be made, to the public, or to any member or section of the public in India, through or pursuant to this report
The research analysts, strategists or economists principally responsible for the preparation of this research report are segregated from the other
activities of IRSPL. Information barriers and other arrangements have been established, as required, to prevent any conflicts of interests.
IRSPL may have issued other reports (based on technical analysis, event specific, short term views etc.) that are inconsistent with and reach different
conclusion from the information presented in this report.
Holding of Analysts/Relatives of Analysts, IRSPL and Associates of IRSPL in the covered securities, as on the date of publishing of this report
36
Analyst/ Entity/
Relative Associates
any financial interests in the company covered in this report (subject company) and nature of such financial
NO NO
interest
actual/beneficial ownership of 1% or more in securities of the subject company at the end of the month
immediately preceding the date of publication of the research report NO NO
or date of the public appearance;
any other material conflict of interest at the time of publication of the research report
NO NO
or at the time of public appearance
received any compensation from the subject company in the past twelve months
for investment banking or merchant banking or brokerage services or investment advisory or depository or
distribution from the subject company in the last twelve months for products/services other than investment NO NO
banking or merchant banking or brokerage services or investment advisory or depository or distribution from
the subject company in the last twelve months
managed or co-managed public offering of securities for the subject company in the last twelve months NO NO
received any compensation or other benefits from the subject company or third party in connection with the
NO NO
research report
served as an officer, director or employee of the subject company NO NO
been engaged in market making activity for the subject company NO NO
Analyst declaration
• The analyst responsible for the production of this report hereby certifies that the views expressed herein accurately and exclusively reflect his
or her personal views and opinions about any and all of the issuers or securities analysed in this report and were prepared independently and
autonomously in an unbiased manner.
• No part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations(s) or
view(s) in this report or based any specific investment banking transaction.
• The analyst(s) has(have) not had any serious disciplinary action taken against him/her(them).
• The analyst, strategist, or economist does not have any material conflict of interest at the time of publication of this report.
• The analyst(s) has(have) received compensation based upon various factors, including quality, accuracy and value of research, overall firm
performance, client feedback and competitive factors.
CGS-CIMB DISCLOSURES
Country CGS-CIMB Entity Regulated by
Hong Kong CGS-CIMB Securities (Hong Kong) Limited Securities and Futures Commission Hong Kong
India CGS-CIMB Securities (India) Private Limited Securities and Exchange Board of India (SEBI)
Indonesia PT CGS-CIMB Sekuritas Indonesia Financial Services Authority of Indonesia
Malaysia CGS-CIMB Securities Sdn. Bhd. Securities Commission Malaysia
Singapore CGS-CIMB Securities (Singapore) Pte. Ltd. Monetary Authority of Singapore
South Korea CGS-CIMB Securities (Hong Kong) Limited, Financial Services Commission and Financial Supervisory Service
Korea Branch
Thailand CGS-CIMB Securities (Thailand) Co. Ltd. Securities and Exchange Commission Thailand
Other Significant Financial Interests:

As of the end of 30th September 2021 immediately preceding the date of this report CGS-CIMB does not:
(i) have a proprietary position in the securities (which may include but not be limited to shares, warrants, call warrants and/or any other derivatives)
in the company(ies) covered in this report except for the following:
(a) Nil
(ii) act as market maker or have assumed an underwriting commitment in securities of the company(ies) covered in this report except for the following:
(a) Nil
(iii) perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to the company(ies) covered
in this report and/or solicit such investment, advisory or other services from the company(ies) covered in this report except for the following:
(a) Nil
37
CGS-CIMB, its affiliates, related corporations (including CGIFHL, CIMBG and their respective related corporations) and/or their respective directors,
associates, connected parties and/or employees and/or IRSPL and/or its affiliates and/or its Directors/employees may own or have positions in
securities of the company(ies) covered in this report or any securities related thereto and may from time to time add to or dispose of, or may be
materially interested in, any such securities.
CGS-CIMB, its affiliates and related corporations (including CGIFHL, CIMBG and their respective related corporations) and/or IRSPL and/or its affiliates
and/or its Directors/employees may do and seek to do business with the company(ies) covered in this research report and may from time to time (a)
buy/sell the securities covered in this report, from time to time and/or (b) act as market maker or have assumed an underwriting commitment in
securities of such company(ies), and/or (c) may sell them to or buy them from customers on a principal basis and/or (d) may also perform or seek to
perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) and/or (e) solicit such
investment, advisory or other services from any entity mentioned in this report and/or (f) act as a lender/borrower to such company and may earn
brokerage or other compensation. However, Analysts are forbidden to acquire, on their own account or hold securities (physical or uncertificated,
including derivatives) of companies in respect of which they are compiling and producing financial recommendations or in the result of which they play
a key part
This report does not purport to contain all the information that a prospective investor may require. Neither CGS-CIMB nor any of its affiliates (including
CGIFHL, CIMBG and their related corporations) make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy,
completeness, reliability or fairness of any such information and opinion contained in this report. Neither CGS-CIMB nor any of its affiliates nor their
related persons (including CGIFHL, CIMBG and their related corporations) shall be liable in any manner whatsoever for any consequences (including
but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB’s and its
affiliates’ (including CGIFHL’s, CIMBG’s and their respective related corporations’) clients generally and does not have regard to the specific investment
objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report
are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments
or other financial instruments or any derivative instrument, or any rights pertaining thereto.
Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment
objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and
other aspects before participating in any transaction in respect of the securities of company(ies) covered in this report. The securities of such
company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors.
The report is not a “prospectus” as defined under Indian Law, including the Companies Act, 2013, and is not, and shall not be, approved by, or filed or
registered with, any Indian regulator, including any Registrar of Companies in India, SEBI, any Indian stock exchange, or the Reserve Bank of India.
No offer, or invitation to offer, or solicitation of subscription with respect to any such securities listed or proposed to be listed in India is being made, or
intended to be made, to the public, or to any member or section of the public in India, through or pursuant to this report
Restrictions on Distributions
Australia: Despite anything in this report to the contrary, this research is prepared for and provided in Australia by CGS-CIMB Securities (Singapore)
Pte. Ltd. and CGS-CIMB Securities (Hong Kong) Limited. This research is only available in Australia to persons who are “wholesale clients” (within
the meaning of the Corporations Act 2001 (Cth) and is supplied solely for the use of such wholesale clients and shall not be distributed or passed on
to any other person. You represent and warrant that if you are in Australia, you are a “wholesale client”. This research is of a general nature only and
has been prepared without taking into account the objectives, financial situation or needs of the individual recipient. CGS-CIMB Securities (Singapore)
Pte. Ltd. and CGS-CIMB Securities (Hong Kong) Limited do not hold, and are not required to hold an Australian financial services license. CGS-CIMB
Securities (Singapore) Pte. Ltd. and CGS-CIMB Securities (Hong Kong) Limited rely on “passporting” exemptions for entities appropriately licensed
by the Monetary Authority of Singapore (under ASIC Class Order 03/1102) and the Securities and Futures Commission in Hong Kong (under ASIC
Class Order 03/1103).
Canada: This report has not been prepared in accordance with the disclosure requirements of Dealer Member Rule 3400 – Research Restrictions and
Disclosure Requirements of the Investment Industry Regulatory Organization of Canada. For any research report distributed by CIBC, further
disclosures related to CIBC conflicts of interest can be found at https://researchcentral.cibcwm.com .
China: For the purpose of this report, the People’s Republic of China (“PRC”) does not include the Hong Kong Special Administrative Region, the
Macau Special Administrative Region or Taiwan. The distributor of this report has not been approved or licensed by the China Securities Regulatory
Commission or any other relevant regulatory authority or governmental agency in the PRC. This report contains only marketing information. The
distribution of this report is not an offer to buy or sell to any person within or outside PRC or a solicitation to any person within or outside of PRC to
buy or sell any instruments described herein. This report is being issued outside the PRC to a limited number of institutional investors and may not be
provided to any person other than the original recipient and may not be reproduced or used for any other purpose.
France: Only qualified investors within the meaning of French law shall have access to this report. This report shall not be considered as an offer to
subscribe to, or used in connection with, any offer for subscription or sale or marketing or direct or indirect distribution of financial instruments and it is
not intended as a solicitation for the purchase of any financial instrument.
Germany: This report is only directed at persons who are professional investors as defined in sec 31a(2) of the German Securities Trading Act
(WpHG). This publication constitutes research of a non-binding nature on the market situation and the investment instruments cited here at the time
of the publication of the information.
The current prices/yields in this issue are based upon closing prices from Bloomberg as of the day preceding publication. Please note that neither the
German Federal Financial Supervisory Agency (BaFin), nor any other supervisory authority exercises any control over the content of this report.
Hong Kong: This report is prepared for and distributed in Hong Kong by CGS-CIMB Securities (Hong Kong) Limited (“CHK”) which is licensed in Hong
Kong by the Securities and Futures Commission for Type 1 (dealing in securities) and Type 4 (advising on securities) activities. Any investors wishing
to purchase or otherwise deal in the securities covered in this report should contact the Head of Sales at CHK. The views and opinions in this report
are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the
Financial Conduct Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CHK has no obligation to update its
38
opinion or the information in this report.

This publication is strictly confidential and is for private circulation only to clients of CHK.
India: This report is prepared by IRSPL for and distributed in India by IRSPL or CGS-CIMB Securities (India) Private Limited (“CGS-CIMB India”), as
the case may be. CGS-CIMB India is a subsidiary of CGS-CIMB Securities International Pte. Ltd. which is in turn is a 50:50 joint venture company of
CGIFHL and CIMBG. The details of the members of the group of companies of CGS-CIMB can be found at www.cgs-cimb.com, CGIFHL at
www.chinastock.com.hk/en/ACG/ContactUs/index.aspx and CIMBG at www.cimb.com/en/who-we-are.html. CGS-CIMB India is registered with the
National Stock Exchange of India Limited and BSE Limited as a trading and clearing member ( under the Securities and Exchange Board of India
(Stock Brokers and Sub-Brokers) Regulations, 1992. . CGS-CIMB India is registered with SEBI (SEBI Registration Number: INZ000209135) as a
Research Analyst (INH000000669) pursuant to the SEBI (Research Analysts) Regulations, 2014 ("Regulations").
By IRSPL producing this report for CGS-CIMB, IRSPL has confirmed to CGS-CIMB that the research analysts, strategists or economists principally
responsible for the preparation of this report are segregated from the other activities of IRSPL and they have received compensation based upon
various factors, including quality, accuracy and value of research, firm profitability or revenues, client feedback and competitive factors. Research
analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed or proposed to be
performed by IRSPL, CGS-CIMB India or its affiliates.
This report does not take into account the particular investment objectives, financial situations, or needs of the recipients. It is not intended for and
does not deal with prohibitions on investment due to law/jurisdiction issues etc. which may exist for certain persons/entities. Recipients should rely on
their own investigations and take their own professional advice before investment.
CGS-CIMB India does not have actual / beneficial ownership of 1% or more securities of the subject company in this report, at the end of the month
immediately preceding the date of publication of this report. However, since affiliates of CGS-CIMB India are engaged in the financial services business,
they might have in their normal course of business financial interests or actual / beneficial ownership of one per cent or more in various companies
including the subject company in this report.
CGS-CIMB India or its associates, may: (a) from time to time, have long or short position in, and buy or sell the securities of the subject company in
this report; or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker
in the financial instruments of the subject company in this report or act as an advisor or lender/borrower to such company or may have any other
potential conflict of interests with respect to any recommendation and other related information and opinions.
CGS-CIMB India and associates have not received any compensation for investment banking, merchant banking or brokerage services from the
subject company mentioned in the report in the past 12 months.
CGS-CIMB India and associates have not managed or co-managed public offering of securities for the subject company mentioned in the report in the
past 12 months.
Indonesia: This report is prepared for and distributed in Indonesia by PT CGS-CIMB Sekuritas Indonesia (“CGS-CIMB Indonesia”). The views and
opinions in this report is prepared from data believed to be correct and reliable at the time of issue of this report and are subject to change. CGS-CIMB
Indonesia has no obligation to update the opinion or the information in this report. This report is for private circulation only to clients of CGS-CIMB
Indonesia. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to
Indonesian residents except in compliance with applicable Indonesian capital market laws and regulations.
This report is not an offer of securities in Indonesia. The securities referred to in this report have not been registered with the Financial Services
Authority (Otoritas Jasa Keuangan) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the
Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the
Indonesian capital market law and regulations.
Ireland: CGS-CIMB is not an investment firm authorised in the Republic of Ireland and no part of this document should be construed as CGS-CIMB
acting as, or otherwise claiming or representing to be, an investment firm authorised in the Republic of Ireland.
Malaysia: This report is prepared for and distributed in Malaysia by CGS-CIMB Securities Sdn. Bhd. (“CGS-CIMB Malaysia”) solely for the benefit of
and for the exclusive use of our clients. Recipients of this report are to contact CGS-CIMB Malaysia, at Level 29, Menara Bumiputra-Commerce, No.
11, Jalan Raja Laut, 50350 Kuala Lumpur, Malaysia, in respect of any matters arising from or in connection with this report. CGS-CIMB Malaysia has
no obligation to update, revise or reaffirm the opinion or the information in this report after the date of this report.
New Zealand: In New Zealand, this report is for distribution only to persons who are wholesale clients pursuant to section 5C of the Financial Advisers
Act 2008.
Singapore: This report is prepared for and distributed in Singapore by CGS-CIMB Securities (Singapore) Pte Ltd (“CGS-CIMB Singapore”). CGS-
CIMB Singapore is a capital markets services licensee under the Securities and Futures Act (Chapter 289). Accordingly, it is exempted from the
requirement to hold a financial adviser’s licence under the Financial Advisers Act, Cap 110 (“FAA”) for advising on investment products, by issuing or
promulgating research analyses or reports, whether in electronic, print or other form. CGS-CIMB Singapore is subject to the applicable rules under the
FAA unless it is able to avail itself to any prescribed exemptions.
Recipients of this report are to contact CGS-CIMB Singapore, 50 Raffles Place, #16-02 Singapore Land Tower, Singapore in respect of any matters
arising from, or in connection with this report. CGS-CIMB Singapore has no obligation to update the opinion or the information in this report. This
publication is strictly confidential and is for private circulation only. If you have not been sent this report by CGS-CIMB Singapore directly, you may not
rely, use or disclose to anyone else this report or its contents.
If the recipient of this report is not an accredited investor, expert investor or institutional investor, CGS-CIMB Singapore accepts legal responsibility for
the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. If the recipient is an accredited investor, expert
investor or institutional investor, the recipient is deemed to acknowledge that CGS-CIMB Singapore is exempt from certain requirements under the
FAA and its attendant regulations, and as such, is exempt from complying with the following:
(a) Section 25 of the FAA (obligation to disclose product information);
(b) Section 27 of the FAA (duty not to make recommendation with respect to any investment product without having a reasonable basis where you
may be reasonably expected to rely on the recommendation);
39
(c) MAS Notice on Information to Clients and Product Information Disclosure [Notice No. FAA-N03];
(d) MAS Notice on Recommendation on Investment Products [Notice No. FAA-N16];
(e) Section 36 of the FAA (obligation on disclosure of interest in specified products); and
(f) any other laws, regulations, notices, directive, guidelines, circulars and practice notes which relates to the above, to the extent permitted by
applicable laws, as may be amended from time to time, and any other laws, regulations, notices, directive, guidelines, circulars, and practice notes as
we may notify you from time to time. In addition, the recipient who is an accredited investor, expert investor or institutional investor acknowledges that
as CGS-CIMB Singapore is exempt from Section 27 of the FAA, the recipient will also not be able to file a civil claim against CGS-CIMB Singapore for
any loss or damage arising from the recipient’s reliance on any recommendation made by CGS-CIMB Singapore which would otherwise be a right that
is available to the recipient under Section 27 of the FAA.
CGS-CIMB Singapore, its affiliates and related corporations, their directors, associates, connected parties and/or employees may own or have
positions in specified products of the company(ies) covered in this report or any specified products related thereto and may from time to time add to
or dispose of, or may be materially interested in, any such specified products. Further, CGS-CIMB Singapore, its affiliates and its related corporations
do and seek to do business with the company(ies) covered in this report and may from time to time act as market maker or have assumed an
underwriting commitment in specified products of such company(ies), may sell them to or buy them from customers on a principal basis and may also
perform or seek to perform significant investment banking, advisory, underwriting or placement services for or relating to such company(ies) as well
as solicit such investment, advisory or other services from any entity mentioned in this report.
As of CGS-CIMB Singapore does not have a proprietary position in the recommended specified products in this report.
CGS-CIMB Singapore makes a market on the specified products.
CGS-CIMB Singapore does not make a market on other specified products mentioned in the report.
South Korea: This report is prepared for and distributed in South Korea by CGS-CIMB Securities (Hong Kong) Limited, Korea Branch (“CGS-CIMB
Korea”) which is licensed as a cash equity broker, and regulated by the Financial Services Commission and Financial Supervisory Service of Korea.
In South Korea, this report is for distribution only to professional investors under Article 9(5) of the Financial Investment Services and Capital Market
Act of Korea (“FSCMA”).
Spain: This document is a research report and it is addressed to institutional investors only. The research report is of a general nature and not
personalised and does not constitute investment advice so, as the case may be, the recipient must seek proper advice before adopting any investment
decision. This document does not constitute a public offering of securities.
CGS-CIMB is not registered with the Spanish Comision Nacional del Mercado de Valores to provide investment services.
Sweden: This report contains only marketing information and has not been approved by the Swedish Financial Supervisory Authority. The distribution
of this report is not an offer to sell to any person in Sweden or a solicitation to any person in Sweden to buy any instruments described herein and may
not be forwarded to the public in Sweden.
Switzerland: This report has not been prepared in accordance with the recognized self-regulatory minimal standards for research reports of banks
issued by the Swiss Bankers’ Association (Directives on the Independence of Financial Research).
Thailand: This report is prepared for and distributed in Thailand by CGS-CIMB Securities (Thailand) Co. Ltd. (“CGS-CIMB Thailand”) based upon
sources believed to be reliable (but their accuracy, completeness or correctness is not guaranteed). The statements or expressions of opinion herein
were arrived at after due and careful consideration for use as information for investment. Such opinions are subject to change without notice and CGS-
CIMB Thailand has no obligation to update its opinion or the information in this report.
CGS-CIMB Thailand may act or acts as Market Maker, and issuer and offerer of Derivative Warrants and Structured Note which may have the following
securities as its underlying securities. Investors should carefully read and study the details of the derivative warrants in the prospectus before making
investment decisions.
AAV, ACE, ADVANC, AEONTS, AMATA, AOT, AP, BAM, BANPU, BBL, BCH, BCP, BCPG, BDMS, BEC, BEM, BGRIM, BH, BJC, BTS, CBG, CENTEL,
CHG, CK, CKP, COM7, CPALL, CPF, CPN, CRC, DELTA, DOHOME, DTAC, EA, EGCO, ESSO, GLOBAL, GPSC, GULF, GUNKUL, HANA, HMPRO,
ICHI, INTUCH, IRPC, IVL, JAS, JMART, JMT, KBANK, KCE, KKP, KTB, KTC, LH, MAJOR, MEGA, MINT, MTC, NRF, OR, ORI, OSP, PLANB, PRM,
PSL, PTG, PTL, PTT, PTTEP, PTTGC, QH, RATCH, RBF, RS, SAWAD, SCB, SCC, SCGP, SINGER, SPALI, SPRC, STA, STEC, STGT, SUPER,
SYNEX, TASCO, TCAP, THANI, TISCO, TKN, TOP, TQM, TRUE, TTB, TU, TVO, VGI, WHA
Corporate Governance Report:
The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy
of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock
Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The
result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.
The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be
changed after that date. CGS-CIMB Thailand does not confirm nor certify the accuracy of such survey result.
Score Range: 90 - 100 80 – 89 70 - 79 Below 70 No Survey Result

Description: Excellent Very Good Good N/A N/A
40
United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing
authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by,
deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is
being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the
original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to
the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United
Arab Emirates.
United Kingdom and European Economic Area (EEA): In the United Kingdom and European Economic Area, this material is prepared for and being
distributed by CGS-CIMB Securities (UK) Limited (“CGS-CIMB UK”). CGS-CIMB UK is authorized and regulated by the Financial Conduct Authority
and its registered office is at 27 Knightsbridge, London, SW1X7YB. The material distributed by CGS-CIMB UK has been prepared in accordance with
CGS-CIMB’s policies for managing conflicts of interest arising as a result of publication and distribution of this material. This material is for distribution
only to, and is solely directed at, selected persons on the basis that those persons: (a) are eligible counterparties and professional clients of CGS-
CIMB UK; (b) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (as amended, the “Order”), (c) fall within Article 49(2)(a) to (d) (“high net worth companies, unincorporated
associations etc”) of the Order; (d) are outside the United Kingdom subject to relevant regulation in each jurisdiction, material(all such persons together
being referred to as “relevant persons”). This material is directed only at relevant persons and must not be acted on or relied on by persons who are
not relevant persons. Any investment or investment activity to which this material relates is available only to relevant persons and will be engaged in
only with relevant persons.
This material is categorised as non-independent for the purposes of CGS-CIMB UK and therefore does not provide an impartial or objective
assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance
with legal requirements designed to promote the independence of research and will not be subject to any prohibition on dealing ahead of the
dissemination of research. Therefore, this material is considered a marketing communication.
United States: This report is prepared for and distributed in the United States of America by CGS-CIMB Securities (USA) Inc, a U.S. registered broker-
dealer and an affiliate of CGS-CIMB Securities Sdn. Bhd., CGS-CIMB Securities (Singapore) Pte Ltd, PT CGS-CIMB Sekuritas Indonesia, CGS-CIMB
Securities (Thailand) Co. Ltd, CGS-CIMB Securities (Hong Kong) Limited and CGS-CIMB Securities (India) Private Limited, and is distributed solely
to persons who qualify as “U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication
is only for Institutional Investors whose ordinary business activities involve investing in shares, bonds, and associated securities and/or derivative
securities and who have professional experience in such investments. Any person who is not a U.S. Institutional Investor or Major Institutional Investor
must not rely on this communication. The delivery of this report to any person in the United States of America is not a recommendation to effect any
transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CGS-CIMB Securities (USA) Inc, is a FINRA/SIPC
member and takes responsibility for the content of this report. For further information or to place an order in any of the above-mentioned securities
please contact a registered representative of CGS-CIMB Securities (USA) Inc.
CGS-CIMB Securities (USA) Inc. has managed or co-managed a public offering of securities in the past 12 months.
CGS-CIMB Securities (USA) Inc. has not managed or co-managed a public offering of any of the securities mentioned in the past 12 months.
CGS-CIMB Securities (USA) Inc. has received compensation for investment banking services in the past 12 months.
CGS-CIMB Securities (USA) Inc. has not received compensation for investment banking services from any of the company mentioned in the past 12
months.
CGS-CIMB Securities (USA) Inc. expects to receive or intend to seek compensation for investment banking services within the next 3 months.
CGS-CIMB Securities (USA) Inc. neither expects to receive nor intends to seek compensation for investment banking services from any of the company
mentioned within the next 3 months.
As of the end of the month immediately preceding the date of publication of this report, CGS-CIMB Securities (USA) Inc. beneficially owns 1% or more
of any class of common equity securities.
United States Third-Party Disclaimer: If this report is distributed in the United States of America by Raymond James & Associates, Inc (“RJA”), this
report is third-party research prepared for and distributed in the United States of America by RJA pursuant to an arrangement between RJA and CGS-
CIMB Securities International Pte. Ltd. (“CGS-CIMB”). CGS-CIMB is not an affiliate of RJA. This report is distributed solely to persons who qualify as
“U.S. Institutional Investors” or as “Major U.S. Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934, as
amended. This communication is only for U.S. Institutional Investors or Major U.S. Institutional Investor whose ordinary business activities involve
investing in shares, bonds, and associated securities and/or derivative securities and who have professional experience in such investments. Any
person who is not a U.S. Institutional Investor or Major U.S. Institutional Investor must not rely on this communication. The delivery of this report to
any person in the U.S. is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion
expressed herein. If you are receiving this report in the U.S from RJA, a FINRA/SIPC member, it takes responsibility for the content of this report. For
further information or to place an order in any of the above-mentioned securities please contact a registered representative of CGS-CIMB Securities
(USA) Inc. or RJA. https://raymondjames.com/InternationalEquityDisclosures
Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribution to professional,
institutional, or sophisticated investors as defined in the laws and regulations of such jurisdictions.
41
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2020,
Anti-Corruption 2020
ADVANC – Excellent, Certified, AMATA – Excellent, Certified, ANAN – Excellent, n/a, AOT – Excellent, n/a, AP – Excellent, Certified, ASP – Excellent,
n/a, AU – Good, n/a, BAM – Very Good, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Certified, BCP - Excellent,
Certified, BCPG – Excellent, Certified, BDMS – Excellent, n/a, BEAUTY – Good, n/a, BH - Good, n/a, BJC – Very Good, n/a, BLA – Excellent,
Certified, BTS - Excellent, Certified, CBG – Very Good, n/a, CCET – n/a, n/a, CENTEL – Excellent, Certified, CHAYO – Very Good, n/a, CHG – Very
Good, n/a, CK – Excellent, n/a, COM7 – Very Good, Certified, CPALL – Excellent, Certified, CPF – Excellent, Certified, CPN - Excellent, Certified,
CPNREIT – n/a, n/a, CRC – Very Good, n/a, DELTA - Excellent, Certified, DDD – Very Good, n/a, DIF – n/a, n/a, DOHOME – Very Good, n/a, DREIT
– n/a, n/a, DTAC – Excellent, Certified, ECL – Excellent, Certified, EGCO - Excellent, Certified, EPG – Excellent, Certified, ERW – Very Good, Certified,
GFPT - Excellent, Certified, GGC – Excellent, Certified, GLOBAL – Very Good, n/a, HANA - Excellent, Certified, HMPRO - Excellent, Certified,
HUMAN – Good, n/a, ICHI – Excellent, Certified, III – Excellent, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a,
IVL - Excellent, Certified, JASIF – n/a, n/a, JKN – Excellent, Declared, JMT – Very Good, Declared, KBANK - Excellent, Certified, KCE - Excellent,
Certified, KEX – n/a, n/a, KKP – Excellent, Certified, KSL – Excellent, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Excellent,
n/a, LPN – Excellent, Certified, M – Very Good, Certified, MAKRO – Excellent, Certified, MC – Excellent, Certified, MEGA – Very Good, n/a, MINT -
Excellent, Certified, MTC – Excellent, Certified, NETBAY – Very Good, n/a, NRF – n/a, n/a, OR – n/a, n/a, ORI – Excellent, Certified, OSP – Very
Good, n/a, PLANB – Excellent, Certified, PRINC – Very Good, Certified, PR9 – Excellent, n/a, PSH – Excellent, Certified, PTT - Excellent, Certified,
PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RBF – Good, n/a, RS – Excellent, n/a, RSP – Good, n/a, S –
Excellent, n/a, SAK – n/a, n/a, SAPPE – Very Good, Certified, SAWAD – Very Good, n/a, SCB - Excellent, Certified, SCC – Excellent, Certified, SCGP
– n/a, n/a, SHR – Very Good, n/a, SIRI – Excellent, Certified, SPA – Very Good, n/a, SPALI - Excellent, Declared, SPRC – Excellent, Certified, SSP -
Good, Declared, STEC – n/a, n/a, SVI – Excellent, Certified, SYNEX – Very Good, n/a, TCAP – Excellent, Certified, THANI – Excellent, Certified,
TIDLOR – n/a, n/a TISCO - Excellent, Certified, TKN – Very Good, n/a, TMB - Excellent, Certified, TOP - Excellent, Certified, TRUE – Excellent,
Certified, TU – Excellent, Certified, TVO – Excellent, Certified, VGI – Excellent, Certified, WHA – Excellent, Certified, WHART – n/a, n/a, WICE –
Excellent, Certified, WORK – Good, n/a.
- CG Score 2020 from Thai Institute of Directors Association (IOD)
- Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of January 30, 2021) are
categorised into: companies that have declared their intention to join CAC, and companies certified by CAC.
Recommendation Framework
Stock Ratings Definition:
Add The stock’s total return is expected to exceed 10% over the next 12 months.
Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net
dividend yields of the stock. Stock price targets have an investment horizon of 12 months.
Sector Ratings Definition:

Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.
Country Ratings Definition:

Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.
42

Bajaj Finance - Incred Equities

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Company Note Finance Companies │ India │ October 07, 2021

Product innovation as per customer needs to ensure better retention

Financial Summary Mar-20A Mar-21A Mar-22F Mar-23F Mar-24F

Total Customer Franchise (LHS: Nos. mn) Cross-Sell Franchise (LHS: Rs m)

Cost to Average Assets

SOURCES: INCRED RESEARCH, NATIONAL PAYMENTS CORPORATION OF INDIA (NPCI)

Fintech story - What’s changing in BAF & why

Business transformation – One platform for solutions

BAF Super App – The customer-friendly approach

Does this mean BAF will operate only digitally?

Why we are bullish on transformation

Transaction data – an architecture for customer acquisition

• Customer acquisition and retention

SOURCES: INCRED RESEARCH, COMPANY REPORTS

• Evolution of credit risk / assessment of probable fraudulent transactions

Payment business in India is competitive yet monopolistic

New NPCI norm is a blessing in disguise for new players

Overall customer acquisition costs will moderate further

Finserv market places to ensure enriched fee income

Fee Income to PBT

SOURCES: INCRED RESEARCH, COMPANY REPORTS

We remain optimistic of accelerated growth in fee-based income for the company

On the lending front, it is a leap from being a product-specific

SOURCES: INCRED RESEARCH, COMPANY REPORTS

The aim is to be a one-stop financial services provider

Relationship with Bajaj Finserv & Bajaj

Bajaj Finserv Direct – the business and ownership

Existence of BFSD – Why we remain comfortable

BAF’s recent investment in BFSD

SOURCES: INCRED RESEARCH, COMPANY REPORTS

Bajaj Finserv provides another value-unlocking opportunity

Fintech landscape in India – Scale needs to

Low credit penetration – focused on low-value customers…

… however technology advancement to attract the affluent

India MSME – Low credit penetration is an opportunity

SOURCES: MINISTRY FOR MSME, INCRED RESEARCH

Regulatory risk exists, but is low

Current leading fintech firms lack balance sheet strength

Account aggregator: Further boost for fintechs

Alternative areas of digital footprints increasing

SOURCES: INCRED RESEARCH, COMPANY REPORTS

BAF to gain first-mover advantage for fintech platform

Comparison to Paytm – BAF at an advantage

Paytm valuations will boost BAF’s valuations

SBI Yono – Another fintech giant in the making

Banking licence – To opt for or not is the question?

We believe the current fintech transformation will also provide management

Deep dive into lending segments –

30% CAGR growth over next 3-5 years possible?

The necessities required to manage growth momentum

Consolidated AUM (LHS - Rs bn) growth (RHS - %)

5000 40.6% 45.0%

SOURCES: INCRED RESEARCH ESTIMATES, COMPANY REPORTS

Can BAF capture 5% of the Indian loans market?

Durables Financing – Customer acquisition platform

Rising share of e-commerce platforms needs careful handling

B2B sales finance – AUM share and growth assumptions

Subvention route for Bajaj Finance

SOURCES: INCRED RESEARCH, COMPANY REPORTS

Banks/credit cards remain major competition