Graphic: Mint
Graphic: Mint

Bajaj Finance does well in Q1 even as competition hots up

Given that most banks have upped their ante in acquiring retail customers, Bajaj Finance perhaps found it tougher than before to grab more customers

Consumer lender Bajaj Finance Ltd seems to be facing some competition in its lending business, with more and more banks chasing the aspiring individual borrower through lucrative deals. The non-banking financial company’s growth metrics for the June quarter fell short of Street expectations, although it’s fair to say that these expectations were extraordinarily high.

Bajaj Finance reported a good 49% growth in fresh loans for the three months ended 30 June, but slower than the previous two quarters. Given that most banks have upped their ante in acquiring retail customers and even other non-banks are aggressively chasing individual borrowers, the company perhaps found it tougher than before to grab more customers.

The first quarter is usually the strongest for Bajaj Finance, which is why a lower-than-expected growth upset investors. The over 5% knee-jerk fall of the stock intraday reflected this sentiment.

But since investors have few options that compare with the company’s pristine quality and high growth, the slowdown was soon forgiven and the stock recovered to close over 1% up on Thursday.

The growth in assets under management has remained strong at 35% and it also seems to be secular across segments. In the words of Rajiv Jain, managing director of Bajaj Finance, there is no one-trick pony in the loan book.

The company’s main consumer lending business grew 35%, loans to small business rose 42%, rural business increased at a breakneck speed of 75% and even the mortgage business, newly housed under a separate subsidiary, gained 27% in the quarter.

The management is sanguine but also cautious as it expects a growth of 25-27% for the current fiscal year. Asset quality continues to be enviable with the gross bad loan ratio within the vicinity of 1%.

Adding to this, the lender reported a 69% surge in net profit on the back of a 42% rise in core income for the quarter ended June. Since the company is in a sweet spot, having got the consumption story right, the stock trades at a rich multiple of six times its estimated book value for fiscal year 2020.

The risk to Bajaj Finance lies from rising borrowing costs, which could crimp margins and hurt its sky-high valuations.