Bajaj Finance Q3 Review: Asset Quality, Digital Transformation Hint At Strong FY23, Say Analysts
Analysts expect Bajaj Finance's earnings momentum to continue next year.
Bajaj Finance Ltd.'s profit growth, improving loan growth, stable asset quality and progress in digital transformation should result in a "strong" FY23, analysts said.
The consumer-focused non-bank finance lender reported an 85% year-on-year jump in consolidated net profit in the quarter ended December, supported by loan growth. Consolidated total income rose 28%.
Its assets under management also increased 26% over the year ago. Sequentially, the NBFC added Rs 14,700 crore worth loans to its AUM—the highest ever by the company. All loan segments grew, except B2B auto finance, which contracted 16% year-on-year.
Asset quality improved during the period and the metrics were at pre-Covid levels.
Managing Director Rajeev Jain said the company was raising the management overlay provisions for the year to Rs 4,800-5,000 crore to protect the balance sheet against any potential future stress coming from the Covid-19 pandemic.
Here's what analysts had to say about the results:
Morgan Stanley
Bajaj Finance delivered its highest-ever net increase in loan book and new customer acquisition in Q3.
It expects customer acquisition to rise to 80-90 lakh annually, compared with past guidance of 70-80 lakh.
Cuts FY22 earnings forecast by 4%, owing to higher provisions.
Valuation is not cheap, but earnings momentum leads to overweight rating, with a target price of Rs 9,060 per share.
Bernstein Research
Collections were not hampered in the first fortnight of Q4FY22, despite rising Covid cases.
Auto finance NPAs remain high and Bajaj Finance remains cautious on the portfolio.
Overdue loans, including NPAs and restructured loans, stood at around Rs 8,400 crore, which the company expects to normalise to Rs 7,000-8,000 crore over the coming quarters.
Phase 1 of the digital transformation journey was initiated in December 2021, with 60 lakh customers, which will be expanded to 1 crore customers this month, covering all its customers.
Phase 2 should also be completed this calendar year.
Maintains outperform, with a target price of Rs 7,240 per share.
Prabhudas Lilladher
Robust growth in net interest income, helped profit growth exceed estimates.
With worst of asset quality pressures behind and assuming third wave menace stands limited for now, estimate credit costs at 2% or less. Estimates around 2% gross NPAs over FY22-24.
Launch of customer engagement and merchant apps, with continued focus on existing customer potential, backed by omnichannel framework position Bajaj Finance to maintain healthy growth traction ahead.
Estimates assets under management to show compounded annual growth rate of 26% over FY22-24.
Maintains buy with a target price of Rs 8,953 per share.