Bajaj Finance share price hit its 52-week high of ₹8,190 on October 6, 2023, and its 52-week low of ₹5,487.25 on March 20, 2023.
Bajaj Finance Q3 result
After market hours on Monday, January 29, Bajaj Finance reported a 31.3 percent year-on-year (YoY) increase in consolidated income from operations to ₹14,161.09 crores. In the same quarter last year, the company’s revenue stood at ₹10,787.25 crores.
Profit after tax (PAT) for Q3FY24 rose 22.4 percent YoY to ₹3,638.95 crores of ₹2,973 crore in the corresponding quarter last year.
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The company said its consolidated assets under management (AUM) crossed a milestone of ₹3,00,000 crore in Q3FY24 and stood at ₹3,10,968 crore as on December 31, 2023. AUM) grew by 35 per cent to ₹3,10,968 crores on December 31, 2023 from ₹2,30,842 crore by December 31, 2022. AUM grew by ₹20,704 crore in Q3FY24.
According to the company, its net interest income increased by 29 percent in Q3FY24 to ₹7,655 crore from ₹5,922 crore YoY. Pre-supply operating profit increased by 27 percent to ₹6,142 crore from ₹4,853 crore YoY.
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“Gross NPA and net NPA as on December 31, 2023, stood at 0.95 per cent and 0.37 per cent respectively against 1.14 per cent and 0.41 per cent as on December 31, 2022. The company has a provisional coverage of 62 per cent on stage 3 assets as on 31 December 2023,” Bajaj Finance said.
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What should investors do?
Most brokerage firms remain positive on the company’s growth prospects and see a healthy upside in the share price from current levels. Most of them recommend buying the stock after the Q3 result.
A brokerage firm Motilal Oswal Financial Services has a call on the stock with a target price of ₹8,500, which implies an 18 percent increase.
The brokerage firm pointed out that the company’s client acquisitions and new loan trajectory have been strong and the momentum will only increase going forward, with the digital ecosystem – app, web platform and full-stack payment offerings – in place.
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Motilal highlighted that Bajaj Finance’s Q3FY24 NIM (net interest margin) declined nearly 25 bps quarter-on-quarter (QoQ) to nearly 12.4 percent while the reported NIM contracted nearly 10 bps QoQ. The brokerage firm estimates NIM compression of nearly 20 bps in FY25 due to the expected increase in the cost of borrowings and difficulty in passing on any additional interest rate hikes to customers.
“Bajaj Finance should be able to offset the NIM compression in FY25 with lower operating cost ratios. Our EPS (earnings per share) estimates are largely unchanged. We expect the company to deliver a PAT CAGR of 27 percent over FY23-FY26, and RoA (return on assets) and RoE (return on equity) of 4.6 per cent and 23 per cent, respectively, in FY26,” Motilal Oswal said.
According to Motilal Oswal, the degree to which the NIM compression can be offset with operating leverage, resulting in a decline in cost ratios, and the impact on B2C businesses, both from a growth and credit cost perspective is the key monitorable for FY25.
A brokerage firm Nirmal Bang also has a buy call on the stock with a target price of ₹9,100, which implies an additional potential of nearly 27 percent.
Nirmal Bang expects strong AUM growth of 32 percent and 28 percent in FY24 and FY25, respectively, contributed by growth among businesses. Furthermore, the brokerage firm expects NIM to remain stable despite rising cost of funds.
However, Nirmal Bang added that it expects growth in the rural and urban B2C segments to be moderated due to asset quality challenges and it remains wary of rising delinquency trends in the portfolio. The brokerage firm expects the regulatory ban on digital loan products to be overturned soon.
Nirmal Bang reduced FY24 PAT estimates taking into account higher credit costs and made marginal changes to FY25 and FY26 estimates.
“We have advanced our valuation to December 2025E ABV (adjusted book value) of ₹1,836 and assigned a lower multiple of 5 times (reflecting the impact of the regulatory ban) resulting in a target price of ₹9,100. A significant cross-selling franchise, foray into new segments and a proven track record of execution however gives confidence in the future prospects,” said Nirmal Bang.
A brokerage firm JM Financial also maintained a buy call on the stock with a target price of ₹10,000, which implies a 39 percent upside potential. The brokerage firm said the easing of regulatory restrictions should act as a trigger for the stock.
JM Financial believes that Bajaj Finance remains the best play on various consumer opportunities with strong risk mechanisms, high growth and superior return ratios.
“Bajaj Finance has a long-term creditable track record in consumer loans and we believe the unsecured loan concerns would resolve over the next two-three quarters as it emerges as a stronger player going forward. Bajaj Finance’s current valuations at 23x FY25e. / 18 times FY26e EPS is attractive given its strong RoA/RoE profile and ability to grow across cycles,” JM Financial said.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and second-hand companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 30 Jan 2024, 10:13 IST