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Bajaj Finance has wind in its sails

by Paul Morgan

Bajaj Finance Ltd’s Shares Hit a New High: A Strong Performance Expected in Q2FY24

Bajaj Finance Ltd, a non-banking financial company, has seen its shares reach a new 52-week high before closing slightly lower. However, the latest business update for the three months ended September suggests that the company is set to have another strong quarter performance. This could lead to potential earnings upgrades in the future.

The company has continued to see a growth in new customer additions, with the quarterly run rate exceeding three million for the fourth consecutive time. As of September, the total customer franchise and deposit book stood at 76.6 million and ₹54,800 crore, respectively. These figures represent a growth of approximately 22% and 39% on a year-on-year basis. While new loans booked during the quarter grew by 26% year-on-year, the metric was slightly lower sequentially.

As a result of these positive trends, Bajaj Finance’s assets under management (AUM) have risen by 33% year-on-year to ₹2.9 trillion as of September. This suggests a strong disbursement in various product segments, including two-wheelers across multiple original equipment manufacturers. This growth in AUM is higher than the growth rates seen in June and March, which were 32% and 25%, respectively.

Furthermore, the steady performance of Bajaj Finance is evident even before the festive season that is expected to bring in additional consumer purchases. This is good news for the company’s AUM as it signifies potential tailwinds in customer additions. If Bajaj Finance continues to execute at a steady pace in the second half of FY24, there could be further re-rating of the stock.

However, there are a few challenges ahead for Bajaj Finance. One of them is the expected softness in margin due to a high cost of funds, which may not be entirely passed on. The company’s liquidity surplus will need to be closely monitored in this regard. Additionally, there is some uncertainty as Bajaj Finance expands into new product lines and the unsecured portfolio. Analysts have projected a gross NPA of 1.4% and credit costs of 1.75% over FY24-26E, factoring in the expansion into these areas. Nevertheless, the asset quality is believed to be healthy despite the potentially high growth in AUMs.

Bajaj Finance’s board will be meeting to discuss a capital raise, even though the company’s tier-1 capital adequacy ratio is a robust 23%. One reason for this could be the company’s high-growth phase, as mentioned by analysts. Another reason could be to build buffers for any increase in risk weights for unsecured loans. However, the company’s current capital levels are deemed sufficient for both factors.

Investors should closely follow these developments and analyze the impact on return ratios. For now, investors in the stock have seen considerable gains, with shares rising by almost 20% in 2023, compared to a 7.4% gain in the Nifty50 index.

In conclusion, Bajaj Finance Ltd is expected to deliver another strong quarter performance, with potential earnings upgrades in the future. Although there are challenges ahead, the company’s growth in AUM and expansion into new segments provide a positive outlook. Investors should stay updated on the latest developments and understand the implications for their investments.

Note: This article contains market insights and analysis. Readers are advised to conduct their own research before making investment decisions.

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