Bajaj Finance’s Q3 performance shows no hint of liquidity crisis
Higher margins, rising proportion of low-yielding mortgage portfolio needs to be closely monitoredThe non-banking financial company surprised the Street with record profits of ₹1,060 crore
Is there a liquidity crisis? That’s the question Bajaj Finance Ltd’s investors would have asked after going through its December quarter (Q3) results.
The non-banking financial company surprised the Street with record profits of ₹1,060 crore, 54% higher than the same period last year. Assets under management (AUM) rose as much as 41% over the same period of the previous year, higher than the growth recorded in the preceding seven quarters.
Little wonder, Bajaj Finance shares jumped nearly 6% in the last hour or so of trading on Tuesday.
Strong growth in high-yielding segments, such as rural and consumer, helped the company’s AUM growth on a year-on-year basis. Sure, the rural portfolio grew at the fastest pace, but that has come off a smaller base.
Expectations were running low on Bajaj Finance’s overall loan growth due to liquidity constraints. For instance, analysts at Kotak Institutional Equities were expecting loan growth or AUM growth to moderate to 35% compared to 38% in the September quarter.
Net interest income, or the difference between interest earned and expended, increased sharply by 46% year-on-year, for the December quarter.
According to Digant Haria, vice president (research) at Antique Stock Broking Ltd, net interest margins increased to 12.6% in the December quarter from 11.5% in the September quarter, which is the highest in many years.
Nonetheless, there are some weak spots. “Asset quality witnessed slight pressure with slippages coming in higher," said analysts from ICICI Securities Ltd in a note to clients, adding that overall headline NPA (non-performing assets) numbers were still under control.
Gross NPA and net NPA ratios for the December quarter came in at 1.55% and 0.62%, respectively. The measures were six basis points and nine basis points higher compared to the September quarter. A basis point is one-hundredth of a percentage point.
The Bajaj Finance stock is still 16% lower than its annual closing high seen on 29 August. While the liquidity crisis doesn’t seem to have impacted the company’s growth in the December quarter, investors may do well to watch for some more time.
Also note that valuations at 4.8 times estimated book for FY21 leave little room for error. Going ahead, increasing margins in the backdrop of a fast growing book and rising proportion of low-yielding mortgage portfolio needs to be closely monitored, according to Haria of Antique Stock.
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