Stock Alert: Here's why Bajaj Finance may underperform markets in near-term

Bajaj Finance share price target: Bajaj Finance, analysts said, may face net interest margin pressure in Q2FY25 which may limit upside in stock price

Bajaj Finance share price: Share price of Bajaj Finance may remain muted in the near-term, analysts cautioned on Wednesday, as they monitor the non-bank finance company's (NBFC's) credit costs and margin trajectory over the next couple of months.

Bajaj Finance, analysts said, may face net interest margin (NIM) pressure in the July-September (Q2) quarter of the current financial year (FY25) as well, which may limit upside in stock price.

"After a 21-basis point (bps) contraction in Q4FY24, NIM contracted another 23bps quarter-on-quarter (Q-o-Q) in Q1FY25. Cost of funds also inched up to 7.94 per cent in the June quarter, from 7.86 per cent Q-o-Q. With a likely shift in asset under management (AUM) mix, we expect margins to be under pressure in Q2 as well," said Renish Bhuva and Chintan Shah of ICICI Securities.

 

On the bourses, Bajaj Finance share price fell 2.8 per cent intraday to Rs 6,543 per share on the BSE on Wednesday. It ended 1.8 per cent lower (Rs 6,610) as against a 0.3-per cent dip in the BSE Sensex index.

High credit costs, AUM shift key overhangs

Bajaj Finance reported a consolidated net profit of Rs 3,912 crore (up 14 per cent year-on-year and 2 per cent Q-o-Q). Analysts, however, said this growth was restricted due to an uptick in credit costs, which came at 2 per cent in Q1FY25 as against 1.6 per cent in Q4FY24. This was higher than the management's FY25 guidance of 1.75-1.85 per cent.

Its net interest income (NII) grew 25 per cent Y-o-Y and 4 per cent Q-o-Q to Rs 8,365 crore, but NIM fell to around 9.8 per cent.

That apart, Bajaj Finance's loan losses and provisions rose to Rs 1,685 crore in Q1FY25, up from Rs 995 crore in Q1FY24, primarily on account of muted collection efficiencies due to  the elections and heatwave.

As for the assets under management (AUM), Bajaj Finance said its AUM grew 31 per cent Y-o-Y and 7 per cent Q-o-Q in Q1FY25, led by 34 per cent Y-o-Y growth in auto loans, 31 per cent in commercial loans, 42 per cent in SME loans.

Though the management kept AUM growth guidance unchanged at 26-28 per cent for FY25, it said it will watch out for high delinquencies in certain segments.

Besides, Bajaj Finance has seen some moderation in personal loans with the NBFC losing market share in the segment (which has declined around 30bps to 6.7 per cent in Q1FY25).

Against this, analysts at Motilal Oswal Financial Services expect higher growth in the secured product segment to keep yields under pressure in the near-term.  

"BAF's key product segments (until now) have been the secular growth segments. However, its foray into multiple new products such as cars, tractors, commercial vehicles, and micro-finance could (in future) make its growth vulnerable to cyclicality despite having a well-diversified product mix," they said.

Analysts cut Bajaj Finance earnings estimates

Analysts at MOFSL have cut their FY26 net profit estimate by 3 per cent to factor in higher steady-state normalised credit costs.

"Despite a healthy net profit CAGR estimate of 24 per cent over FY24-FY26, and RoA/RoE of 4.2 per cent/22 per cent in FY26, we see limited upside catalysts," the brokerage said with a 'Neutral' rating and a lower target price of Rs 7,500.

Those at Nomura, while maintaining FY25/26 earnings per share (EPS) estimate and 'Neutral' rating, also trimmed their target price to Rs 7,200 (from Rs 7,500) due to near-term uncertainties.

Phillip Capital, too, has cut net profit estimates by 1 per cent for FY25 and 7 per cent for FY26.

The brokerage, however, maintained a 'Buy' rating on the  stock and a target price of Rs 10,000 as it remains confident of growth being over 30 per cent in FY25/FY26/FY27.