Bajaj Finance Shares Fall Even As Analysts Retain 'Buy' Call After Q4

Shares of Bajaj Finance Ltd. fell the most in around 10 months even as most analysts retained their 'buy' calls on the lender citing improved asset quality, scaling up of branch networks and customer acquisitions.

The non-bank lender's profit after tax jumped 80% over the preceding year to Rs 2,419.5 crore in the January-March period, according to its exchange filing. That compares with the Rs 2,438-crore consensus estimate of analysts tracked by Bloomberg.

• Gross non-performing assets ratio fell 13 basis points sequentially to 1.60%. Net NPAs fell 10 basis points quarter-on-quarter to 0.68%.

• Consolidated total income stood at Rs 8,630 crore, up 26% year-on-year.

• The lender’s assets under management increased 29% over the year ago to Rs 1.97 lakh crore. In the fourth quarter, the company booked 62.8 lakh new loans as against 54.7 lakh a year ago.

• The non-bank lender's deposits book grew 19% over a year ago to Rs 30,800 crore as of March 2022.

The company has said it sees opex ratios in FY23 to be "elevated" as it expands geographically and develops its digital platform.

Shares of Bajaj Finance fell as much as 7.6% intraday on Wednesday, the worst since July 19 last year. Of the 31 analysts tracking the company, 20 recommend a ‘buy’, six suggest a ‘hold’ and five have a ‘sell’ call, according to Bloomberg data. The average of 12-month price targets implies a 15.9% upside.

Here's what brokerages made of Bajaj Finance's Q4 results:

• Maintains 'hold', raises target price to Rs 7,600 from Rs 7,200, implying a potential upside of 8.4%.

• Bajaj Finance posted a 25% year-on-year rise in net interest income. Still, this was a tad lower than Jefferies' expectations due to slight compression in net interest margin.

• Asset quality faced some pressure due to corporate non-performing loans that offset the improving core book performance.

• Bajaj Finance has ramped up its branch network by 17% year-on-year with growth in rural markets where it would have an early-mover advantage in consumer goods financing.

• These platforms are strengthening Bajaj Finance's franchise, although in the near to medium term it can keep its cost to income ratio at higher levels.

• Management clarified that it does not plan to convert into a bank, at least for the next two-three years, and will continue to invest in building its franchise. This may address any overhang from a potential transition into a bank and the impact on growth and profitability.

• Bajaj Finance has been growing faster than other lenders we cover, but this is well priced into the valuation.

• Maintains 'buy' with a target price of Rs 8,700, implying a potential upside of 19.8%.

• Bajaj Finance reported another strong quarter of profitable growth. Net profit was in line with expectations, led by 43% YoY drop in provisioning as asset quality metrics are now trending better than pre-Covid levels.

• NII growth of 25.4% YoY lagged AUM growth as NIMs declined 21 basis points YoY, likely due to heightened competitive intensity.

• Given the company’s low cost of funds and long operating history, it would be able to endure high competition while maintaining top notch profitability.

• The company has continued to invest in growth and technology. FY23 opex ratios could be elevated as it is looking to develop its digital web platform and expanding geographically.

• Customer acquisition remains strong and is expected at 80-90 lakh in FY23.

• Maintain 'buy' with a target price of Rs 9,500, implying a potential upside of 31%.

• Healthy business momentum, improved asset quality.

• The fintech story is embedded in this business, valuations should stay at premium. The digital web platform, similar to app is the new strategy in FY23.

• The core business has got potential and is well on track to get transformed into an adaptable new-age fintech.

• Digital transformation with robust customer additions and wallets to boost profitability factoring initial cashbacks as part of opex, no impact on profit.

• Apart from Bajaj Finance, in our BFSI coverage we also like HDFC Ltd.

• Maintains ‘buy’ rating with a reduced target price of Rs 8,350 per share, implying a potential upside of 15%.

• Q4 was a healthy quarter for Bajaj Finance, with all-round momentum across key business parameters. Customer acquisitions and trajectory in new loans remain strong. This momentum will only get stronger with its digital ecosystem: app, web platform, and full-stack payment offerings.

• Key things to watch out for in FY23 include evolution of its payments landscape and traction therein, velocity on the already launched app and the envisaged new web platform, potential foray into the credit cards business from its own balance sheet, two-wheeler marketplace and diversification to other non-captive OEMs, and margin trajectory in the face of aggressive competition, leading to a pressure on margin.

• Even though the management has guided that it will prioritise margin over loan growth, margin compression is likely in FY23, as levers like normalisation in excess liquidity and borrowing costs have largely played out.

• The competitive landscape also continues to remain aggressive.

• Maintains ‘buy’ rating with a target price of Rs 8,953, implying a potential upside of 23.6%.

• Earnings were led by robust net interest income traction and low provisions. Strong business momentum continued, benign funding costs reduced with improvement in asset quality.

• The digital transformation journey is being closely watched out for and Bajaj Finance has announced creation of a digital web platform.

• Given deep investments required to create omni channel strategy, Bajaj Finance expects opex-to-NII to remain at elevated levels in FY23. Incorporating healthy business/NII traction into our estimates, our FY23 and FY24 EPS stand higher by 8%.