Bajaj Finance misses Street estimates for Q3 but brokerages remain upbeat

Bajaj Finance Q3 earnings missed the Street estimates for the quarter ended December 2023 but brokerages remained bullish on the stock as they believe that while the company saw slight hiccups like higher loan losses and provisions during the quarter under review, its performance was well within the guided range.

Going forward, stable asset quality and strong AUM (assets under management) growth would drive earnings, analysts said.

In Q3FY24, Bajaj Finance recorded a consolidated net profit of Rs 3,639 crore, reflecting a 22 percent on-year growth on the back of an increase in net interest income (NII) and improvement in asset quality.

This figure fell short of expectations from a Moneycontrol poll of six brokerages, which had estimated a 25 percent year-on-year increase in net profit to Rs 3,716 crore for the non-banking financial company (NBFC).

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Bajaj Finance’s total net income also jumped 25 percent on-year to Rs 9,298 crore in the October-December quarter, slightly missing the 26 percent YoY growth expectations. NII during the quarter increased 29 percent YoY to Rs 7,655 crore, while number of new loans booked grew by 26 percent on-year to 9.86 million during the same period.

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HSBC has issued a ‘buy’ call on Bajaj Finance with the target price set at Rs 8,900 per share despite the company’s third-quarter earnings falling short of estimates due to reduced fees and increased credit costs.

The brokerage has, however, lowered its earnings per share (EPS) estimates by 3-5 percent for FY24-26 to account for slower loan growth and decreased fees. Despite these challenges, Bajaj Finance Managing Director Rajeev Jain affirmed his commitment to actively shaping the strategy for Bajaj Finance.

Nomura has also put a ‘buy’ rating on the stock with a target price of Rs 8,800 per share, stating that the NBFC’s Q3 results were in line with expectations, although there was a slight deterioration in asset quality.

“Despite this, there was strong growth in assets under management (AUM) across segments, except for rural business-to-consumer (B2C) operations. Pre-provision operating profit (PpOP) growth remained robust,” it noted.

However, there was an increase in Bajaj Finance’s credit costs despite a decline in the provision coverage ratio (PCR), and stress levels remained high in unsecured segments, noted Nomura. “Overall, despite these minor setbacks, the company’s performance remains well within the guided range,” it said.

Jefferies is also bullish on Bajaj Finance as it put a ‘buy’ call on the stock with a target price of Rs 9,400 per share. Strong growth in assets under management (AUM) and improved net interest margins (NIMs) contributed to a rise in the net interest income (NII).

However, there was disappointment in asset quality due to slippage in personal loans, the international brokerage noted. Additionally, the embargo on Emicard remains, and Bajaj Finance may submit revised standards to the Reserve Bank of India (RBI) in the fourth quarter, it said.

Also Read | Bajaj Finance Q3 results: Net profit rises 22% to Rs 3,639 crore

On January 29, Bajaj Finance shares closed 1.6 percent higher at Rs 7,200 on the National Stock Exchange (NSE). The stock has risen over 19 percent in last one year, underperforming benchmark Nifty 50 which has risen 23 percent during this period.

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