Bajaj Finance - Board Meeting To Evaluate Capital Raise; Possible Implications? Motilal Oswal's Analysis

Motilal Oswal Report

• Bajaj Finance Ltd., on September 22, 2023, reported to the stock exchanges that it has scheduled a Board Meeting on October 05, 2023 to consider a proposal for raising of funds including by way of preferential issue and/or qualified institutional placement subject to regulatory and shareholder approvals.

• Interestingly, Bajaj Finance has always communicated in the past that its leverage threshold has been ~7.0 times and the last three instances when the company initiated its capital raising plan, its trailing leverage (year ending March) was 6.3 times, 6.6 times, and 6.8 times in March 2019, March 2017 and March 2015, respectively.

• The company posted a consolidated leverage (assets/net-worth) of 5.2 times and capital adequacy of ~24.6% as of June 2023. Standalone leverage stood at ~4.3 times.

• This equity capital raise will be indeed much earlier than what we had anticipated given our current expectations of a ~29% consolidated assets under management compound annual growth rate over FY23-FY25.

• In this report, we intend to ponder on the possible reasons that could have prompted the Bajaj Finance management to evaluate this equity capital raise despite reasonable leverage and high capital adequacy.

• Before we delve deeper, we want to emphasise that we strongly believe this capital is not for any stress that could be there in its (rural) personal loan book.

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