Street gives thumbs up to Bajaj Finance's strong Q1 biz update, stock up 7%

Though most analysts are bullish on the stock, their average target price indicates that near-term positives are well captured

A strong business update for the April-June quarter of the 2023-24 financial year Q1FY24 has led to a big jump of over 7 per cent in the share price of Bajaj Finance on Tuesday.

The non-banking financial company’s (NBFC’s) new loan book grew 34 per cent with 9.9 million new loans booked in Q1FY24 from 7.2 million loans booked in Q1FY23. The company’s total customer franchise rose to 72.98 million (as on June 30, 2023), compared to 60.30 million year-on-year (YoY) with the highest-ever quarterly increase of 3.84 million in Q1FY24.

Assets under management (AUM) grew by 32 per cent to about Rs. 270,050 crore in Q1FY24 from Rs. 204,018 crore in Q1FY23. This was the highest ever quarterly increase in AUM of about Rs. 22,700 crore in Q1FY24. The consolidated net liquidity surplus stood at about Rs. 12,700 crore as of June 30, 2023. In addition, the deposit book rose to Rs. 49,900 crore from Rs. 34,102 crore a year ago, a YoY growth of 46 per cent.

This follows a robust Q4FY23 performance. In Q4FY23, profit after tax or PAT (up 31 per cent YoY) saw healthy core AUM growth of 29 per cent and stable net interest margin (NIM) of around 10.7 per cent. The net interest income (NII) was up 30 per cent and pre-provision operating profit (PPOP) was up 29 per cent YoY. Jump in other income (up 20 per cent YoY) was offset by higher provisions (up 22 per cent YoY). 

Going by the Q1 update, the trend of strong customer addition, new loan acquisitions and omnipresence strategy across all segments continues. The company expects some moderation in NIM in FY24 as it will see enhanced competition and its cost of financing is also likely to rise. Capex cycle is almost complete with the company having digitised and this should mean better operating leverage going forward. The operating expenditure to NII ratio fell slightly to 34 per cent from around 34.8 per cent in Q3FY23 and it is expected to fall further in FY24. 

The gross non-performing asset (GNPA) and net NPA ratios improved to 0.94 per cent and 0.34 per cent, respectively, in Q4 versus 1.14 per cent and 0.41 per cent, respectively, in Q3FY23. The two-wheeler and three-wheeler segment saw gross NPA reduce to 4.8 per cent from 6 per cent in Q3. The management maintains an overlay provision of Rs. 960 crore. The capital adequacy ratio is solid at 25 per cent.

The focus for FY24 may be deeper penetration in the payments business. Niche financing products, a strong online presence and deeper rural reach could drive loans expansion at 26 per cent compound annual growth rate over FY23–FY25. The Q1FY24 update indicates that the company remains well on course.

Bajaj Finance holds over half of consumer loans by volumes, with market-share of 30 per cent of electronics, and 27 per cent of iPhones. Digital platforms like Bajaj+ aim to serve a new category of customers. The company is pushing into multiple segments like auto, tractor, commercial vehicles, microfinance and emerging corporate with a combination of platforms, apps and network of physical branches and the launch of new loan-products

It is also cross-selling credit cards and expects this to add 5-10 per cent to profits by FY25. In payments, it targets 3 per cent share. The digital presence has improved engagement with existing customers, with 35 million-plus users for the app. 

The company stock is up 39 per cent in the last 12 months and hit a new high of Rs. 7,917 on Tuesday before closing at Rs. 7,861.40. According to Bloomberg, 10 out of the 14 analysts polled since June are bullish on the stock; two have a ‘reduce’/’sell’ rating and one is ‘neutral’. Their average target price is Rs. 7,660.