Bajaj Finance Q2 Results Review- Inline; Reported Net Interest Margin Contracts 15 Basis Points: Motilal Oswal

Motilal Oswal Report

Bajaj Finance Ltd.’s Q2 FY24 reported profit after tax grew 28% YoY to ~Rs 35.5 billion (inline).

Net interest income rose 30% YoY to ~Rs 72 billion. Other operating income grew 13% YoY, and net total income jumped 26% YoY to ~Rs 88.4 billion in Q2 FY24.

Bajaj Finance’s Q2 FY24 net interest margin (calc.) contracted ~35 basis points QoQ to ~12.6% even as the reported NIM declined ~15 bp QoQ. We model NIM compression of ~20 bp in FY24 due to the expected rise in cost of borrowings and challenges in passing on any further interest rate hikes.

We have incorporated the announced equity capital raise of ~Rs 100 billion in our estimates and model an assets under management/profit after tax compound annual growth rate of ~29%/28% over FY23- FY26. We expect Bajaj Finance to deliver an return on asset/return on equity of 4.8%/23% in FY26.

Key monitorables for FY24 are:

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

2. the degree to which the NIM compression can be offset with operating leverage, resulting in a contraction in cost ratios.

Reiterate 'Buy' with a target price of Rs 9,600 (premised on 5.7 times September-25E book value per share).

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