Bajaj Finance Shares Gain Most In Five Months On Stable Quarterly Earnings

Bajaj Finance Ltd.'s shares rose the most in five months after the non-bank lender reported a steady set of earnings for the fourth quarter.

Net profit rose 42% to Rs 1,347 crore in the January-March period from Rs 948 crore a year ago. Net interest income fell 2.4% to Rs 4,569 crore at the end of the March quarter. Bajaj Finance’s gross non-performing asset ratio as on Mar. 31 stood at 1.79% compared with 2.86% pro forma gross NPA as on Dec. 31, while its net non-performing assets rose to 0.75% of its total advances, compared to pro forma net NPA of 1.22% in the preceding quarter.

While Bajaj Finance’s earnings and growth disappointed some analysts, others said the balancesheet remains strong.

Here’s what brokerages had to say about the lender’s quarterly earnings:

HSBC

• Earnings missed our expectations on lower other income and higher operating expenses. We lower our FY22-23 estimated earnings by an average 4% on lower growth and higher credit cost assumptions.
• Consolidated assets under management grew 7% quarter-on-quarter (+4% year-on-year), with all the businesses returning to growth mode except its two-wheeler financing business.
• Balance sheet back in good shape. Gross non-performing loans declined to 1.8% from 2.8% in Q3 with write-offs at close to 1.3% in the fourth quarter. Restructured loans constituted about 1.1% of loans classified as Stage 2. Bajaj Finance provided close to 20% towards such loans, higher than the regulatory requirement.
• After a challenging FY21, we expect Bajaj Finance to return to a high growth phase from FY22. Technology initiatives are underway, which should allow Bajaj Finance to lend to its customers seamlessly and reduce its customer acquisition costs.
• Its strong capital level (25.1% Tier-1 ratio) and liquidity position should allow it to tap potential opportunities.

Goldman Sachs

• Assets under management grew by 4% year-on-year and 7% sequentially in the quarter. However, the new loans booked decreased by 9% year-on-year to 5.5 million in this quarter with existing.
• customers contributing to 59% of the new loans booked (vs 64% in last quarter).
• While new loan origination across businesses is back to pre-Covid level, its auto finance segment continues to lag behind.
• While Bajaj Finance is well positioned in terms of its provisioning policy and cost of funds, we believe the competitive headwinds have intensified in the consumer loan segments. This coupled with a delayed benefit of operating leverage could put earnings at risk.
• This also skews the risk reward proposition given the stock is trading at rich valuations of 25x FY23 estimated earnings per share.

Anand Rathi

• Most of the businesses started delivering greater volumes. The focus now is on the launch of the three-in-one financial services by creating an omni-channel framework. This omni-channel model will enable customers to move from online to offline, and vice versa.
• At the end of the fourth quarter, Bajaj Finance further lowered credit costs to the lowest in the last five quarters. This also helped boost net profit 42% year-on-year.
• The company guided to 150-170 basis points credit costs provided there is no national lockdown, three-four large GDP contributing states do not go into simultaneous lockdowns for 3-5 weeks and no moratorium on loan repayment. FY21 credit costs were 4.1%.

Morgan Stanley

• Bajaj Finance did well on revenue and asset quality. Costs grew back faster than expected but FY22 should see efficiency gains with business transformation initiatives.
• Bajaj Finance guided that it will deliver on long term guidance metrics in FY22 barring adverse outcomes like severe lockdowns, moratorium.
• In our base case, we are assuming that the impact of Covid second wave will be short-lived. We expect a sharp earnings recovery in FY22 with a 20% plus return on equity.

Of the 30 analysts tracking Bajaj Finance, 15 recommend 'buy', while seven suggest 'hold' and eight have a 'sell' rating, according to Bloomberg data. The stock has no upside based on the average of 12-month price targets compiled by Bloomberg.

Shares of the Pune-based lender rose as much as 7.4%—the most since Nov. 10—to Rs 5,223.95, before paring some of the gains.