Bajaj Finance reported a healthy set of numbers in the quarter ended March 31, 2024, against the backdrop of RBI’s embargo on EMI and Ecom cards which affected the company’s profit before tax (PBT) by 4 per cent, largely meeting consensus estimates.
The non-banking finance company (NBFC) reported a 21 per cent year-on-year (YoY) increase in consolidated net profit to Rs 3,825 crore in the March quarter. Its net interest income (NII) grew 28 per cent YoY to Rs 8,013 crore compared to Rs 6,254 crore in the year-ago period. However, the net interest margin (NIM) shrunk by 21 basis points (bps) in the reported quarter.
Gross non-performing assets (NPA) and net NPA stood at 0.85 per cent and 0.37 per cent as of March 31, 2024, respectively, compared to 0.94 per cent and 0.34 per cent as of March 31, 2023.
Despite reporting the in-line quarterly numbers, Bajaj Finance’s shares tanked over 8.5 per cent 7.5 per cent to settle at Rs 6,730.80 at the NSE on Friday. At the close on April 26, Bajaj Finance’s share price had surged over 8.5 per cent over the last year, underperforming the benchmark Nifty50, which has gained around 25 per cent in the same period.
Kaitav Shah, Lead BFSI Analyst at Anand Rathi Institutional Equities says that despite the in-line Q4 numbers the near-term forward outlook is soft. The guidance on the credit cost which the company has given between 175 to 185 bps for FY25 looks a bit on the higher side.
“In addition, the company expects the net interest margin (NIM) to fall around 30-40 bps over the next two quarters, which also impacted the investors’ sentiment negatively,” he added.
Despite the company making a conscious shift towards the lower-risk lower-yielding segments, the management has guided for credit costs to range between 175-185 bps, slightly higher compared to pre-COVID levels. This marginal increase is owing to regulatory changes with respect to the definition of NPA.
The NBFC projects its assets under management (AUM) to grow between 26-28 per cent in the financial year starting April 1, 2024, as compared to 34 per cent growth in the financial year 2024.
In the January-March quarter, the consolidated AUM grew to Rs 3.31 lakh crore, compared to Rs 2.47 lakh crore in a similar period last year.
According to a report by brokerage Motilal Oswal, the rural B2C business exhibited muted AUM growth as the company has reduced business volumes in this segment in the face of higher delinquencies. The urban sales finance business was affected by the RBI embargo on e-commerce and digital Insta EMI cards.
In November 2023, RBI barred Bajaj Finance from sanctioning and disbursing loans under two of its lending products – eCOM and Insta EMI Card citing non-issuance of key fact statements (KFS) to the borrowers under these two lending products and deficiencies in the KFS for other digital loans of the company.
BAF has addressed the deficiencies in the process that led to the RBI ban and has formally requested the regulator to lift the ban. In addition to digital lending products, the company has implemented KFS for all lending products effective from March 2024 and made it available in 20 vernacular languages to ensure compliance in form and spirit.
On account of the RBI restrictions, the new loans booked during the quarter were lower by approximately 0.80 million.
Emkay Global says the company is progressing well on its long-range strategy targets. “To reflect the Q4 developments and management commentary on future outlook, we adjust our estimates leading to a 3 per cent cut in FY25E PAT, albeit a 1 per cent increase in FY27E PAT,” it said.
The brokerage firm reiterated the ‘BUY’ rating on the stock, with an unchanged March 2025 estimated target price of Rs 9,000 per share, implying FY26E consolidated P/BV of 5.1x.
Brokerage Motilal Oswal downgraded the stock to ‘Neutral’ with a target price of Rs 7,800. The report highlights that the downgrade on the stock is predicated on the near-term headwinds on AUM growth in the B2B business due to the RBI ban.
NIM compression of 35 bps, compared to 20 bps earlier, is due to the expected rise in the cost of borrowings, difficulty in passing on the interest rate hikes on customers, change in product mix, and elevated costs from the B2C portfolio in almost all FY25.
Despite the embargo on issuing new EMI cards, the company remains confident of delivering yet another strong performance in FY25 across most metrices. News about lifting the RBI embargo and listing its subsidiaries would drive valuations in the near term.
