Bajaj Finance Q1 Results Review - Healthy Quarter Despite Elevated Credit Costs: Motilal Oswal

Motilal Oswal Report

Bajaj Finance Ltd.’s Q1 FY24 reported profit after tax jumped 32% YoY to ~Rs 34.4 billion (inline). The good operational performance was driven by:

1. healthy run-rate in customer additions/new loans disbursed,

2. further asset quality improvement, and

3. YoY moderation in cost income ratios during the quarter.

Net interest income grew 27% YoY to ~Rs 67.2 billion. Other operating income rose 23% YoY and net total income jumped 27% YoY to ~Rs 84 billion.

NIM (calculated) was stable QoQ at ~13% in Q1 FY24 even as reported NII declined ~10 basis points QoQ. We model a NIM compression of ~25 bp in FY24E due to the expected rise in cost of borrowings and difficulty in passing on interest rate hikes to customers.

We estimate an assets under management/profit after tax compound annual growth rate of ~29%/26% over FY23-FY25 and expect Bajaj Finance to deliver an return on asset/return on equity of 4.6%/25% in FY25.

Key monitorables in FY24:

1. evolution of its payments landscape and adoption of its payment offerings, and

2. degree to which the NIM compression can be offset with operating leverage that can result in a decline in cost ratios.

Reiterate 'Buy' with a target price of Rs 8,800 (premised on 6.5 times FY25E book value per share).

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