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Bajaj Finance Ltd has reported a September quarter that aligns with analysts’ expectations. While the results may have shown a slower pace of growth in net interest income (NII) compared to asset under management (AUM) growth due to margin pressure, the company’s performance reflects a healthy profitability. This is primarily attributed to the operating leverage that kicked in during the quarter.
Strengthened Profitability
The financial institution witnessed a 28 percent year-on-year surge in net profit, reaching Rs 3,551 crore. The net interest income (NII) also saw significant growth, with a 26 percent increase to Rs 8,398 crore. However, the net interest margin did experience an 11 basis points sequential fall, settling at 10.3 percent due to a higher cost of funds at 7.67 percent.
Positive Analyst Sentiment
Analysts continue to hold a positive view of Bajaj Finance’s prospects:
Nirmal Bang Institutional Equities: The firm expressed confidence in Bajaj Finance’s future prospects, noting its significant cross-sell franchise, expansion into new segments, business transformation initiatives, and proven execution track record.
InCred Equities: This brokerage highlighted Bajaj Finance’s plans to raise Rs 8,800 crore of equity to support its next phase of growth, including new lending areas and improved penetration in existing geographies. It increased its earnings estimates for FY25 and FY26, raising the target price to Rs 9,850.
PhillipCapital: The brokerage emphasized Bajaj Finance’s robust credit cost and risk management. With a diversified funding base, AAA rating, positive asset-liability management (ALM), and a high-quality loan book, PhillipCapital suggested a target price of Rs 10,000.
Motilal Oswal Securities: The firm values the stock at Rs 9,600 and is keen on monitoring the evolution of Bajaj Finance’s payments landscape and the adoption of its payment offerings. They will also be tracking the extent to which net interest margin (NIM) compression can be offset with operating leverage.
Kotak Institutional Equities:
In contrast to the positive sentiment of other brokerages, Kotak Institutional Equities has maintained its ‘Reduce’ call on the stock. While acknowledging the positive macroeconomic factors, benign credit environment, and aggressive franchise expansion, it also highlighted the challenges of rising funding costs.
Bajaj Finance’s in-line Q2 results have kept the company in good standing with analysts. The strong profitability, robust credit management, and future growth plans have contributed to a positive outlook for the company, as reflected by various brokerages. However, challenges such as rising funding costs must be carefully navigated to ensure sustained success in a competitive market.
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