Bajaj Finance Q4 profit zooms more than 30%; what should be the strategy now?

Bajaj Finance’s share price will remain in focus on April 27 on the back of better numbers reported by the company, a day before.

Bajaj Finance reported on April 26 that its consolidated net profit for the quarter ended March 2023 was at Rs 3,157.79 crore, up 30.51 percent from Rs 2,419.51 in the same quarter last year.

Revenue from operations of the financial services firm came in at Rs 11,359.59 crore, up 31.68 percent from Rs 8,626.06 crore in the year-ago quarter.

The Board of Directors have recommended a dividend on equity shares at the rate of Rs 30 per share, the company said in a regulatory filing.

Net interest income for 04 FY23 increased by 28 percent to Rs 7,771 crore from Rs 6,061 crore.

Reacting to the quarterly performance, shares of Bajaj Finance rose two percent on the BSE. Bajaj Finance is the lending arm of Bajaj Finserv. Even Bajaj Finserv raced to become the best performer on Nifty 50 index, by gaining two percent.

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Here is what brokerages have to say about stock and the company post March quarter earnings:

Motilal Oswal

Customer acquisition and the new loan trajectory have been strong. The momentum will only get stronger ahead, with the digital ecosystem – app, web platform and full-stack payment offerings – in place.

The company should be able to offset the NIM (net interest margin) compression in FY24 with lower operating cost ratios and credit costs.

Motilal Oswal’s FY24/FY25 estimates have seen a minor increase to factor in the higher AUM growth guidance and expect the company to deliver a PAT CAGR of 24% over FY23-FY25 and a RoA/RoE of 4.6%/24% in FY25.

Maintains ‘buy’ with a Target Price of Rs 7,080 (premised on 5.3x FY25E BVPS).

Morgan Stanley

Morgan Stanley kept an ‘overweight’ rating on the stock with a target of Rs 8,000 per share. The consensus estimate revisions remain positive.

The company’s return on equity (RoE) profile, which is a key value creation metric at a record high and there are levers to improve it further.

The company has raised its loan growth guidance for FY24 to 28-29%, which is higher than the earlier estimate of 26-27%.

The new customer acquisition will rise to 11-12 million from 9-10 million and interest rates peaking should be a tailwind.

Prabhudas Lilladher

Broking firm maintains buy rating with a target price at Rs 7,835 on (7x Sep’24E PABV) as its FY24/25 estimates remain unchanged.

The impact of rate hikes on cost of funds is more gradual than anticipated although Prabhudas Lilladher expect NIM’s to moderate to 11.8% in FY24 from 12.1% in FY23.

Management has maintained AUM growth guidance in the corridor of 25%-27% even as competition intensity remains high especially in consumer finance and mortgage segment.

Re-rating can happen if company manages to achieve growth guidance and increase stickiness of new to franchise customers.

Sharekhan

The stock has witnessed significant correction from its highs in the past 12 months and at CMP, the company trades at 5.5x/ 4.3x its FY2024E/ FY2025 BV.

Sharekhan believe the company is poised to deliver sector-leading ROA/ ROE of ~4.7%/ 22% over FY23-FY25E. Diverse product offerings through omni channel presence along with focus on new customer addition and ability to cross-sell different products is likely to support AUM growth.

Digital transformation, omnichannel strategy is likely to bode well for its growth objectives along with operational efficiencies going ahead and its full impact is yet to be visible.

The company has exhibited its strong ability to navigate through economic downcycle, led by a prudent and agile management team and robust risk
management framework. Stock offers reasonable risk reward for long term investors.

Reiterate a buy on Bajaj Finance with an unchanged price target of Rs 7,500.

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