Bajaj Finance declines for fifth straight session, sheds 6% in one week

In the past six months, the stock has plunged 23 per cent as compared to a 3.4 per cent fall recorded by the Sensex

Shares of Bajaj Finance declined for the fifth straight day on Tuesday, falling 1 per cent intra-day to Rs 5,776 on the BSE. In the past one week, the stock of the non-banking finance company (NBFC) has slipped 6 per cent on concerns of slowdown in loan growth and net interest margin (NIM) compression. In comparison, the S&P BSE Sensex was down 3 per cent during the week.

In the recent past, Bajaj Finance has underperformed the market by a huge margin. In the past one month, the stock slipped 10 per cent as against a 4.5 per cent decline in the Sensex. In the past six months, it plunged 23 per cent as compared to a 3.4 per cent fall recorded by the benchmark index.

Further, in the past one year, the stock has declined 13 per cent as against a 3 per cent rise in the Sensex. Bajaj Finance had hit a 52-week low of Rs 5,235.60 on June 17, 2022.

According to analysts at Ambit Capital, Bajaj Finance’s one-year forward valuation implies 25 per cent assets under management (AUM) growth with around 20 per cent RoE over the next decade. Despite superior technology/analytics/ processes/distribution, it’s a tall task. No Indian lender has grown at 20 per cent for 2 decades.

Bajaj Finance already has a large market share in MSME/personal loans within NBFCs where competition is increasing from banks. Home loan growth would be RoA/RoE dilutive due to low NIM. Moreover, commensurate liabilities scale-up would be a challenge as an NBFC due to various regulatory caps on deposit mobilization and exposure of capital providers to NBFCs, the brokerage said in a stock update.

However, banking license is a solution but would compress RoE to 15 per cent. Fintech initiatives are unlikely to change the business dynamics much due to late entry and intense competition. Expect slowdown in loan growth and NIM compression to result in AUM growth/ROE tapering off (<20 per cent from FY25), resulting in de-rating of the stock, analysts said.

Analysts at Motilal Oswal Financial Services see NIM compression in FY24 as levers on borrowing costs have largely played out and the competitive landscape will limit any significant yield expansion.

Customer acquisitions 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. We raise our FY23 estimates by 2 per cent to factor in better margins. We estimate Bajaj Finance to deliver a RoA/RoE of 4.6 per cent/24 per cent over the medium term, the brokerage said in its December quarter result update.

Key factors to watch out for in FY24 include evolution of its payments landscape and traction therein; velocity of the consumer app and the adoption of the web platform; build-out of new product segments like CV, Tractor, MFI that Bajaj Finance plans to launch in the next fiscal, analysts said.

Technical View

Bias: Bearish

Target: Rs 5,490

Bajaj Finance seems to be placed firmly in bears grip even as select momentum oscillators are in oversold zone. 

The stock has been trending along its lower-end of the Bollinger Bands on the daily chart for the last four trading sessions. Sustained trade below Rs 5,730 could further weigh on the stock.

On the downside, the stock could slide towards the lower-end of the Bollinger Bands on the weekly chart, indicating a target of Rs 5,490-odd level.

In case the stock is able to hold the Rs 5,730-level on a closing basis, a pullback rally towards Rs 5,900 seems likely.

(With inputs from Rex Cano)