Shares of Bajaj Finance Ltd fell 5 per cent in Tuesday's trade even as the NBFC reported a 22 per cent year-on-year (YoY) rise in the December quarter profit at Rs 3,639 crore. There was a minor deterioration in asset quality while credit costs remained elevated for Bajaj Finance. Net interest margin (NIM) for Bajaj Finance saw a compression of 11 basis points (bps) on a sequential basis. The lender has taken 20-30 bps hike in loan rates to compensate for rise in cost of funds. Bajaj Finance, analysts said, brought down growth in Rural B2C segment (ex-gold loan) due to some stress. It continues to be watchful on risk actions in Rural B2C business, they added.
Following the development, the stock fell 4.8 per cent YoY to Rs 6,841.65 on BSE. With this, the stock is down 5.47 per cent year-to-date.
The RBI banned two of Bajaj Finanec products, viz. Insta EMI Cards and e-Comm transactions in November 2023 and Bajaj Finance suggested that it has made an initial submission (with changes in KFS) to the RBI and that it expects to make the final submission along with digital signatures and vernacular support to the apex bank within a few weeks.
"The RBI had observed some deficiencies in its co-branded credit cards. BAF management shared that it will work closely with RBL Bank to get these deficiencies ironed out. The RBI increased risk weights on consumer credit exposure to 125 per cent from 100 per cent. This had an impact of 290 bps on the company’s CRAR," Motilal Oswal said.
"Customer acquisitions and the new loan trajectory have been strong. The momentum will only get stronger going ahead, with the digital ecosystem – app, web platform, and full-stack payment offerings – in place. BAF should be able to offset the NIM compression in FY25 with lower operating cost ratios. Our EPS estimates are largely unchanged. We expect BAF to deliver a PAT CAGR of 27 per cent over FY23-FY26, and an RoA/RoE of 4.6 per cent/23 per cent in FY26. Maintain BUY with a target of Rs 8,500 (premised on 4.6 times FY26E BVPS)," Motilal Oswal said.
PhillipCapital said Bajaj Finance has seen multiple cycles and come out with lower than expected credit costs through each. A diversified funding base, AAA rating, positive ALM in less than one-year bucket and a high churn book make it a compelling investment argument.
"The hallmark of any credit business is credit cost and risk management. The collection architecture of BAF is very granular and efficient. We remain confident of growth being 25 per cent-plus in FY24/FY25/FY26. New tech initiatives being launched and new credit card relationship with DBS keep us enthused of new vectors of customer stickiness and growth. The stock trades at 4.9x FY25E BV for a FY25E RoE of c.22%. Maintain BUY and our target of Rs 10,000," it said.
Arihant Capital said Bajaj Finance displayed healthy performance during the quarter, despite the pressure on NIMs led by increasing cost of funds. It remained positive on the stock with a long-term positive outlook.
"We believe that despite minor inch up in credit costs in 3QFY24, Bajaj Finance remains the best play on diversified consumption opportunity with strong risk mechanisms, high growth and superior return ratios. We see Bajaj Finance, being a strong incumbent with long-standing credible track record in consumer lending, only emerging stronger as the concerns around unsecured loans settle over the next 2-3 quarters. BAF's current valuations at 23 time FY25e are attractive given its strong RoA/RoE profile and ability to growth across cycles," JM Financial said.
Easing of regulatory restrictions should act as a trigger for the stock, it said while suggesting a target of Rs 10,000 on the stock.
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