Bajaj Finance share price cracks 5% after Q3 result; what should investors do?
Bajaj Finance share price plunges 5 per cent after Q3FY24 scorecard report. Bajaj Finance reported a 31.3 per cent year-on-year (YoY) rise in consolidated revenue from operations to ₹14,161.09 crore.
Bajaj Finance share price plunged 5.03 per cent to close at ₹6,826 on BSE on Tuesday, January 30, a day after the company reported its December quarter (Q3FY24) scorecard. Bajaj Finance share price opened at ₹6,993 against the previous close of ₹7187.50 and soon fell 5.3 per cent to the day's low level of ₹6,806. The stock finally settled at ₹6,826.
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 per cent year-on-year (YoY) rise in consolidated revenue from operations to ₹14,161.09 crore. In the same quarter last year, the company's revenue stood at ₹10,787.25 crore.
Profit after tax (PAT) for Q3FY24 rose 22.4 per cent YoY to ₹3,638.95 crore from ₹2,973 crore in the corresponding quarter last year.
Also Read: Bajaj Fin watchful on rural B2C credit
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 of December 31, 2023. AUM) grew by 35 per cent to ₹3,10,968 crore as of December 31, 2023, from ₹2,30,842 crore as of December 31, 2022. AUM grew by ₹20,704 crore in Q3FY24.
According to the company, its net interest income increased by 29 per cent in Q3FY24 to ₹7,655 crore from ₹5,922 crore YoY. Pre-provisioning operating profit increased by 27 per cent to ₹6,142 crore from ₹4,853 crore YoY.
"Gross NPA and net NPA as of 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 of December 31, 2022. The company has a provisioning coverage ratio of 62 per cent on stage 3 assets as of December 31, 2023," Bajaj Finance said.
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What should investors do?
Most brokerage firms remain positive about the company's growth prospects and see a healthy upside in the stock price from the current levels. Most of them recommend a buy on the stock after the Q3 result.
Brokerage firm Motilal Oswal Financial Services has a buy call on the stock with a target price of ₹8,500, implying an 18 per cent upside.
The brokerage firm pointed out that the company's customer acquisitions and the new loan trajectory have been strong and the momentum will only get stronger going ahead, with the digital ecosystem – app, web platform, and full-stack payment offerings – in place.
Motilal highlighted that Bajaj Finance's Q3FY24 NIM (net interest margin) declined nearly 25 bps quarter-on-quarter (QoQ) to nearly 12.4 per cent while the reported NIM contracted nearly 10 bps QoQ. The brokerage firm estimates a NIM compression of nearly 20 bps in FY25 due to the expected rise in the cost of borrowings and difficulty in passing on any further 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 per cent over FY23-FY26, and a 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 costs perspective are the key monitorable for FY25.
Brokerage firm Nirmal Bang also has a buy call on the stock with a target price of ₹9,100, implying an upside potential of nearly 27 per cent.
Nirmal Bang expects strong AUM growth of 32 per cent and 28 per cent in FY24 and FY25, respectively, contributed by growth across businesses. Besides, the brokerage firm expects NIM to remain stable despite a rise in the cost of funds.
However, Nirmal Bang added that it expects growth in the rural and urban B2C segments to be tempered due to asset quality challenges and it remains watchful of rising delinquency trends in the portfolio. The brokerage firm expects the regulatory ban on digital lending products to be reversed soon.
Nirmal Bang has reduced FY24 PAT estimates factoring in higher credit costs and made marginal changes to FY25 and FY26 estimates.
"We have rolled forward 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-sell franchise, foray into new segments and proven execution track record however provide confidence about the future prospects," said Nirmal Bang.
Brokerage firm JM Financial also maintained a buy call on the stock with a target price of ₹10,000, implying a 39 per cent 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 diversified consumption opportunities with strong risk mechanisms, high growth and superior return ratios.
"Bajaj Finance holds a long-standing credible track record in consumer lending and we believe that the concerns around unsecured loans would settle over the next two to three quarters as it emerges as a stronger player going ahead. Bajaj Finance's current valuations at 23 times FY25e/18 times FY26e EPS are 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 broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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