Bajaj Finance gains 8% despite a miss on Q4 nos; brokerages remain mixed

HDFC Securities notes that Bajaj Finance reported muted performance primarily on account of higher employee expenses

Shares of Bajaj Finance gained as much as 9 per cent to Rs 5,307 apiece on the BSE on Wednesday even as the NBFC posted lower-than-expected March quarter result (Q4FY21). The stock ended as the top gainer on the Sensex with an 8 per cent gain (Rs 5,279) on the BSE. In comparison, the benchmark S&P BSE Sensex closed 1.6 per cent higher.

The consumer durable financier, on Tuesday, reported a 42 per cent jump in consolidated net profit at Rs 1,347 crore for the fourth quarter of the fiscal ended March 2021. The company's net profit stood at Rs 948 crore in the January-March period of the preceding fiscal year 2019-20.

The company's assets under management as of March 31, 2021 increased by 4 per cent to Rs 1.52 trillion as against Rs 1.47 trillion a year ago.

HDFC Securities notes that Bajaj Finance reported muted performance (operating profit was nearly 11 per cent below expectations) primarily on account of higher employee expenses. Loan loss provisions remained elevated at 3.4 per cent of AUM as the company took accelerated write-offs of Covid-related stress of Rs 1,530 crore. 

However, the brokrage remains positive on the company as it believes BAF is poised to deliver strong AUM growth going forward. "With improving credit quality across segments (except 2/3 wheelers and B2C loans), the management is upbeat about portfolio growth driving operating leverage and profitability. We maintain 'BUY' with revised target price of Rs 4,928," it said in a result review report.

Those at JM Financial are betting on Bajaj Finance's superior business model and strong profitability focus to navigate the near-term challenges. They maintain BUY and value the stock at 33x FY23E EPS implying a target price of Rs 5,750.
 

In Q4 FY21, new loans booked during fell to 54.7 lakh (5.47 million) as against 60.3 lakh (6.03 million) in the same quarter a year ago, Bajaj Finance said in a regulatory filing. Net interest income during the quarter also dipped 1 per cent to Rs 4,659 crore from Rs 4,684 crore in Q4 FY20.

Further, the gross and net non-performing assets (NPAs) stood at 1.79 per cent and 0.75 per cent respectively by end of March 2021, as against 1.61 per cent and 0.65 per cent earlier. 

Against this backdrop, analysts at Kotak Institutional Equities believe that as the company resumes its growth push, its large base may constrain its ability to deliver on the high multi-year growth implied in its valuations.

"Bajaj’s superior execution capabilities have been impressive and over the past few years, the business has seen several transformations up until the current avatar of multiple verticals and products. At the current juncture, the key challenge for the company is to manage high growth despite such a large base," it said.

Given this, the brokerage has cut their estimates by 3-10 per cent to reflect a realignment of growth to 18-24 per cent from high levels of 19-27 per cent assumed earlier. Besides, a second Covid wave, potential stress from restructured loans (1.2 per cent of loan book) and loans converted to ‘flexi’ in 1HFY21 (7 per cent of loan book) have moderated their stance. The brokerage has 'sell' call on the stock with a target price of Rs 4,200.

Axis Securities too maintains a 'sell' call on the stock and have revised their credit costs downwards for FY22/FY23E given the up-fronting of credit costs.

"While the business transformation process augurs well, the management’s guidance towards a normalized FY22E looks largely baked in current valuations. We maintain a Sell on the stock with a revised target of Rs 4410," it said.