Bajaj Finance Q3 Review: Stable Margins Keep Earnings Momentum Going

Bajaj Finance Ltd. delivered strong earnings over the October-December quarter of FY23, driven by stable margins and healthy additions to assets under management.

The non-bank lender net profit rose 40% year-on-year in the third quarter to Rs 2,973 crore. Net interest income, or core income, for the lender grew 25% year-on-year in Q3 to Rs 7,051 crore.

Bajaj Finance also maintained its momentum in customer acquisition and loan growth, which expanded its assets under management by 27% year-on-year for the quarter ended Dec. 31. While the lender's net interest margin shrank from 10.8% to 10.5% sequentially in Q3, it remained flat compared to the same quarter in FY22.

The lender's cost of funds rose by 23 basis points sequentially to 7.14% in the third quarter, but the ability to pass on some of the costs and asset-liability management helped Bajaj Finance protect its margins.

Asset quality conditions for Bajaj Finance improved marginally over Q3, with the gross non-performing asset ratio falling by 3 basis points sequentially to 1.14%. The net NPA ratio, too, improved to 0.41% from 0.44% as of Sept. 30.

Overall, analysts remain positive about the earnings outlook for Bajaj Finance, with its new product launches and the quality of earnings from fresh customers flagged as key monitorables.

Shares of Bajaj Finance gained 3.63% to Rs 5,970 apiece as of 10:15 a.m., while the benchmark Nifty 50 declined 0.15%.

Analysts' Take On Bajaj Finance's Q3 performance:

Nomura

• Near-term valuations will be influenced by variations in growth trends as compared to industry levels.

• Mortgage growth was relatively flat owing to pricing pressure.

• Current valuations driven by the lender's book size appear reasonable given industry growth levels.

• Maintain a 'neutral' rating and value Bajaj Finance at Rs 6,100 per share.

Nirmal Bang

• AUM growth momentum moderated as management prioritised margins over growth.

• The company's digital strategy is progressing well.

• The lender plans to offer microfinance loans, starting with Uttar Pradesh and Bihar.

• Maintain 'buy' rating with a target price of Rs 7,107 per share.

HDFC Securities

• Bajaj Finance delivered steady interest margins with strong AUM growth in a rising interest rate environment.

• The sharp stock price correction over the last few months appears disconnected from earnings potential.

• Upgrade to 'add' rating on the valuation with a target price of Rs 6,700 per share.

Motilal Oswal

• Adoption velocity of consumer apps and web platforms remains a key factor to watch for.

• The lender is on track for better earnings momentum.

• Management categorically stated it has no plans to convert into a bank.

• Maintain 'buy' rating with a target price of Rs 6,880 per share.