Bajaj Finance Q3 results review: The December quarter results of Bajaj Finance Ltd met the Street expectations, thanks to steady net interest margin (NIM) and credit cost. The stock is trading at a steep discount to its 5-year valuation multiple, yet analysts are mixed over whether it is in the 'Buy' zone. A few of them have a 'neutral' rating on the stock, citing a lack of upside catalysts and the management transition ahead. Others sees it as 'Buy' on firm prospects.
On Thursday, the stock climbed 5.67 per cent to hit a high of Rs 8,198.55 on BSE. MOFSL said Bajaj Finance continued to take proactive risk actions by cutting segments and pruning exposures. The management shared that GS3 at 1.1 per cent as of December 2024 remains well below the long-term guidance of GS3 of 1.2-1.4 per cent. It said, given that its credit costs have peaked, the NBFC would look to accelerate AUM growth in the (Rural) B2C segment in the foreseeable future.
In addition, Bajaj Finance's partnership with Bharti Airtel has the potential to become huge over the medium term, given there are 20 crore non-overlapping Airtel customers that can be targeted by Bajaj Finance.
"Valuations at 3.4 times P/BV and 18 times FY27E PE are not inexpensive, and the focus now will shift to the management transition and the role that Rajeev Jain will play in the company from Apr’25 onwards. We expect asset quality to stabilize from 4QFY25 onwards, allowing BAF to navigate this mini-credit cycle effectively," MOFSL said.
MOFSL, however, does not see any significant upside catalysts in the near term given that the management transition will be very keenly watched until more clarity emerges. It suggested a target price of Rs 8,300 on the stock.
Nirmal Bang Institutional Equities said NII for Q3 was largely in line with its expectations, but pre-provision operating profit (PPOP) and PAT growth came in 2-5 per cent lower than its estimates.
"We trim our FY25E/FY26E PAT estimates factoring in higher expenses. Roll forward to December 2026E ABV with an unchanged multiple of 3.4 times resulting in a target price of Rs 7,500," Nirmal Bang said.
BAF has seen a large shift in business mix, growth outlook and profitability metrics, it said adding that the valuation is at a significant discount to the 5-year average P/ABV of 6 times. For now, the brokerage has maintained a 'Hold' rating on the scrip.
Axis Securities expects NIMs for Bajaj Finance to remain stable until the rate cut cycle, with the management prioritising protecting NIMs over growth. "With asset quality stress receding, we expect credit costs to moderate, thereby gradually supporting earnings growth for BAF," it said while upping its target price for Bajaj Finance to Rs 9,050 from Rs 7,655 per share. This brokerage retained 'Buy' on the stock.