Bajaj Finance Shares Fall Most In At Least Six Months
Here's what brokerages had to say about Bajaj Finance's Q2 results...
Shares of Bajaj Finance Ltd. witnessed the steepest decline in at least six months, becoming the worst performer among peers.
The Bajaj Group company's net profit jumped in the quarter ended September. Its net interest income also rose and assets under management improved.
Most analysts, however, expect earnings momentum to pick up significantly with new payments initiatives. Margins are likely to sustain on lower cost of funds, reduced liquidity, and normalisation in interest reversals.
Rajeev Jain, managing director of Bajaj Finance, said the company has raised its management overlay provisions by Rs 350 crore to Rs 832 crore to protect itself against a potential third Covid-19 wave.
Shares of the company declined as much 4.8% to Rs 7,481.3 apiece as of 11:30 a.m. on Wednesday. The stock's trading volume was triple the average for this time of the day.
Of the 30 analysts tracking the company, 15 recommend 'buy', eight suggest 'hold', and seven have a 'sell' call. The average of 12-month price targets compiled by Bloomberg implies a downside of 2.8%.
Here's what brokerages had to say about Bajaj Finance's Q2 showing:
Motilal Oswal
Maintains 'buy' rating, cuts target price to Rs 8,650 apiece, implying a potential upside of 10%.
Despite the slightly higher credit costs and elevated operating expenses, the second quarter was decent for Bajaj Finance.
Customer acquisitions and new loans booked have not reached record highs, but have convincingly scaled back to pre-Covid levels.
Expect Bajaj Finance to be able to deliver a quarterly run-rate in asset growth similar to pre-Covid levels in the second half.
Provided there is no new Covid wave, it expects the company to contain credit costs to around 2.8% in FY22.
Margin is likely to sustain on lower cost of funds, reduced liquidity, and normalisation in interest reversals.
Looking forward to the new features which will be rolled out in the second sprint of the consumer app.
The payments stack of Bajaj Finance will be exciting as it plans to leverage PPI, UPI, EMI cards, and credit cards, along with a rewards program.
ICICI Direct
Maintains 'buy' rating and target price of Rs 8,950 apiece, implying a potential upside of 15%.
Earnings recovery as expected, expect cost pressures to stabilise.
Factoring in management agility towards product development and execution strength, it remains positive.
Believes with NNPA guidance of <1% and strong credit growth with payments foray, premium valuations will stay as banking, financial services and insurance fintechs with low profits/losses are still getting significant valuations.
Morgan Stanley
Stays 'overweight' on the stock, raises target price from Rs 6,850 to Rs 9,060 apiece, implying a potential upside of 15%.
Earnings momentum is set to pick up significantly. Bajaj Finance has the three P's – profits, platform, and payments – that excite investors in "new age" stocks. The decibels around new initiatives will also rise from here.
Valuation is not cheap – but earnings momentum with the improving economy and its fintech narrative imply that the stock is likely to keep doing well.
Goldman Sachs
Maintains ‘sell’ rating, sets a target price that implies a downside of 42%.
While the launch of digital properties (mobile apps) is due in the next two-four months, the customer acquisition momentum is back with Bajaj Finance acquiring 24 lakh customers in this quarter versus 19 lakh in the pre-Covid quarter (Q2 FY20).
Market share in core portfolios such as business-to-business, unsecured, and micro, small and medium enterprises loans seems to have stabilised in this quarter with franchise products witnessing a growth of 4% sequentially.
The current valuation of the stock implies compounded customer acquisition growth of 24% CAGR over FY21-25 which makes the risk-reward skewed, even though we note the company's endeavor to upgrade its digital presence.
Given Bajaj is a nascent player in the payments business, and the payments business is becoming the center of small ticket lending as well as cross selling, it sees competition heating up across key portfolios such as B2B, consumer financing and SME financing from the traditional lenders as well as fintechs. Fintechs are forging partnerships to grow market share, particularly as online-commerce gathers momentum.
Bajaj could potentially have to consider becoming a bank at some stage, which would bring about near-term business uncertainty, though it could be a long-term positive
Prabhudas Lilladher
Maintains ‘buy’ rating with a largely unchanged target price of Rs 9,092 (earlier Rs 9,096), implying a potential upside of 15.7%.
Q2 earnings missed its estimates on account of elevated collection costs and employee hiring, yet stood healthy on several fronts — marked improvement in auto finance non-performing assets, decrease in write-offs, higher provisioning coverage ratio and strong core income.
Bajaj Finance stands poised to clock robust return profile predominantly led by receding credit costs pressures with anticipated rebound in auto financing, rural B2C and mortgage over Q4 FY22-Q1 FY23. Operating efficiencies to flow with infra/collection/employee costs already factored into current numbers.
Premium valuations are here to stay as Bajaj Finance is now perceived as a profitable fintech lender.
Nirmal Bang
Maintains ‘sell’ rating, with a target price of Rs 6,914 apiece, implying a potential downside of 12%.
Yet another strong quarter with growing net profit. Estimate disbursements to have more than doubled year-on-year.
With lockdown restrictions easing and economy normalising, it expects the company to revert to a high growth phase.
Increases assets under management growth assumption for FY22 to 24% followed by 21-22% compound annual growth rate over FY23-24. Growth has been more broad-based across segments. The company is on track to achieve a customer acquisition run-rate of 7-8 million annually.
The company’s high growth ambition can be captured by extensive employee hiring during the quarter, besides continued investments in developing the digital platforms.
Operating expense run-rate was elevated on the back of new employee hiring and high collection costs. As overdue levels recede in the coming quarters, collection costs are expected to fall and should normalise by Q4.
With bulk of the provisions being front-loaded, the quarterly run-rate is expected to trend down. In line with the asset quality improvement seen in Q2, faster economic normalisation and improving collections across products, we have reduced our non-performing assets estimates and brought them in line with the management’s guidance.
Launch of digital platforms, which is aimed at a seamless customer shopping experience, is expected to yield significant benefits.
Despite the strong performance and upward revision in earnings, we maintain a sell on the stock primarily due to high valuations.
Kotak Institutional Equities
Downgrades to ‘sell’ from ‘reduce’ rating with a fair value of Rs 6,000, implying a downside of 23%.
Business momentum is picking up, though investments in growth and recovery expenses offset the benefits in the near term.
The Street’s focus will remain on execution of the digital strategy over the next two quarters and digital momentum that may be gathered over subsequent 2-3 quarters.
High growth, as a consequence of the aforesaid initiatives, is already reflected in the current market price.
The current market price is likely factoring 20% earnings growth over FY 2025-35, followed by 16% growth over the next eight years, leaving no room for volatility.