Bajaj Finance's June quarter performance was better than analysts expectations on most fronts. Profit for the NBFC grew 32.4 per cent YoY, thanks to 32 per cent YoY growth in asset under management, a slower growth in operating expenses and controlled credit costs. Analysts, however, are mixed on the stock's prospects, with some analysts raising concerns over prevailing valuations while others suggesting re-rating potential ahead. Net-net, share price targets for Bajaj Finance stayed broadly in the Rs 7,950-9,500 range.
Motilal Oswal Securities said Bajaj Finance's customer acquisitions and the new loan trajectory have been strong and that the momentum will only get stronger ahead, with the digital ecosystem – app, web platform and full-stack payment offerings – in place.
The brokerage believes Bajaj Finance should be able to offset the NIM compression in FY24 with lower operating costs ratios and credit costs. It has cut its FY25 EPS by 2 per cent to factor in higher credit costs and expects Bajaj Finance to deliver a profit CAGR of 26 per cent over FY23-FY25. Motilal Oswal has a target of Rs 8,800 on the stock.
Bajaj Finance reported a 32 per cent year-on-year rise in net profit at Rs 3,437 crore compared with Rs 2,596 crore in the same quarter last year. Net interest income (NII) for the quarter rose 26 per cent YoY to Rs 8,398 crore compared with Rs 6,640 crore in the corresponding quarter last year. New loans booked were up 34 per cent to 99.4 lakh in the June quarter compared with 74.2 lakh in the year-ago quarter. This was the highest ever new loans in a quarter.
Bajaj Finance said it delivered highest ever AUM growth of Rs 22,718 crore, booked 99.4 lakh new loans and added 38.4 lakh new customers in the June quarter.
Following the quarterly results, Nirmal Bang Institutional Equities has rolled forward its valuation to June 2025E adjusted book value of Rs 1,445 and assigned a multiple of 5.5 times to Bajaj Finance, based on which it derived a target price of Rs 7,948 on the stock against Rs 7,000 earlier.
"The company’s comfortable asset quality, revamped digital & collection infrastructure and its business transformation initiatives to revive growth are factors which give us confidence about good earnings growth in the coming quarters. However, the positives are already factored in the rich valuation of 5.4 times FY25E ABV," it said.
YES Securities said that the raising of AUM growth assumptions and marginal downward adjustment in tax rate by Bajaj Finance caused a 4 per cent upgrade in its FY25 profit estimate.
The stock is trading at a shade above its long-term mean valuation and there is headroom for re-rating with persistence of robust growth and RoE delivery, YES Securities said.
"Bajaj Finance has exhibited resilience in growth and profitability through various phases of competition, economic cycles/events and liquidity, underpinned by dominant market position in focused segments, agile business approach and addition of new growth segments. Development of new product lines like Gold Loans, Auto loans, CV finance, Tractor loans, Microfinance and Emerging Corporate loans would support long-term franchise growth. Retain BUY with increased 12m target of Rs 8,550," it said.
JM Financial expects Bajaj Finance to deliver 29 per cent CAGR AUM growth given its new product launches going ahead and 29 per cent CAGR in earnings over FY23-25E, as operating leverage has now started showing signs of scale up as evident from strong growth achieved during the quarter).
"At current valuations, Bajaj Finance is quoting at P/BV of 5.4 times FY25E BVPS and P/E of 23.5 times FY25E EPS which we believe are reasonable for a quality franchise as Bajaj Finance . Maintain BUY with target of Rs 9,500 valuing it at 30x FY25E EPS," it said.
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