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Bajaj Finance's AUM stood at  ₹1.4 trillion as of December end. Photo: Pradeep Gaur/Mint
Bajaj Finance's AUM stood at 1.4 trillion as of December end. Photo: Pradeep Gaur/Mint

For Bajaj Finance’s stakeholders, the focus is on revival trajectory

  • In essence, Bajaj Finance’s key metrics are back to pre-covid levels, in line with market expectations
  • This good streak needs to have more legs for investors to feel comfortable with lender’s valuations

Consumer lender Bajaj Finance Ltd looks to be sure-footed on its path towards recovery.

In a notification to the exchanges on Monday, Bajaj Finance said it added 2.2 million new customers in the December quarter. This is closer to the average number of customers the lender has been adding every quarter before the pandemic.

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Another encouraging metric is the addition of new loans. The lender managed to add 6 million new loans during the December quarter. In essence, Bajaj Finance’s key metrics are back to pre-pandemic levels. The recovery has played out as expected by the market.

Back on the track
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Back on the track

For its investors, though, Bajaj Finance’s update on key metrics for the December quarter merely confirms their expectations. Shares of the non-banking financial company (NBFC) crossed their pre-covid highs last month.

The improvement in growth metrics comes because of a festival season push that was anticipated. Analysts expect much of this improvement to be led by retail personal loans. Indians were back to buying consumer durables and electronics through the efficient equated monthly instalment (EMI) schemes of the lender. The fact that Bajaj Finance saw its new customers increase is proof of that.

This good streak, however, needs to have more legs for investors to feel comfortable with the lender’s current valuations. The stock has run up 55% since early November, and has more than made up for the underperformance vis-a-vis HDFC Bank Ltd shares until end-October.

On the back of these gains, the Bajaj Finance stock now trades at a multiple of 7 times its estimated book value for FY22. To be sure, the global liquidity chasing quality stocks and the enthusiasm infused by the vaccine has driven valuations up to an uncomfortable point. Even so, most analysts have preferred to recommend the stock as a buy notwithstanding valuations, citing the potential growth in the coming quarters.

But a key piece of the performance is delinquencies, details of which will be available when the lender’s board meets to release quarterly results on 20 January. While there are expectations that delinquencies may not see a sharp rise, any adverse signs would hurt sentiment. “With the broader economy reviving, asset quality is likely to fare better than initially expected. This would give the management more confidence to pursue growth opportunities," wrote analysts at Motilal Oswal Financial Services Ltd

Bajaj Finance is conserving capital rather than going all out on growth as it used to do in the past. This thread of caution is working in its favour as investors view this as prudence.

That said, the lender will have to play the delicate balancing game of growth and asset quality.

Bajaj Finance has managed to come out of the pandemic with mild bruises.

But to justify its valuations, investors would watch for the speed at which growth returns.

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