Bajaj Finance shares soar 4% as Q3 business update shows robust AUM growth

NBFC reported 26% rise in new loans during the December quarter

Shares of Bajaj Finance sprinted 4.7 per cent to Rs 7,732 per share on the BSE in Thursday's intraday trade as the non-bank finance company's (NBFC's) December quarter business update reflected minimal impact of the Reserve Bank of India's ban on two of its lending products.

The shares, eventually, ended  4.4 per cent higher at Rs 7,710 per share as against 0.69 per cent gain in the benchmark S&P BSE Sensex.

The NBFC's asset under management (AUM) topped the Rs 3-trillion-mark at the end of December 2023, swelling by roughly Rs 20,700 crore (35 per cent year-on-year) to hit Rs 3.11 trillion-mark.

New loans booked during October-December quarter of financial year 2023-24 (Q3FY24) climbed by 26 per cent Y-o-Y to 9.86 million as compared to 7.84 million loans in the corresponding quarter of FY23 (Q3FY23).

"Bajaj Finance's AUM growth was in-line with past trends as the reported AUM stood at Rs 3.11 trillion, up 35 per cent Y-o-Y/7 per cent Q-o-Q. The growth rate suggests that the festive period was strong for BAF and that it successfully leveraged traditional channels (except digital/ecommerce) for newer customer acquisitions," analysts at Motilal Oswal said in a report with a 'Buy' rating.

In November 2023, the RBI had directed Bajaj Finance Ltd. to stop sanction and disbursal of loans under its two lending products – 'eCOM' and 'Insta EMI Card', with immediate effect.

Back then, analysts had expected Insta EMI Card acquisitions/issuances to decelerate over the next 45-90 days.

CLSA, for instance, had expected that BAF would see a revenue hit of Rs 42 crore per quarter, assuming 700,000 digital EMI cards are disbursed with a processing fee of Rs 600.

Besides, with a monthly run-rate of 220,000-230,000 loan volumes on e-commerce (eCOM) platforms of 110,000-120,000 monthly B2B loans originated through the Insta EMI Card, analysts at the brokerage anticipated BAF to compromise on loan volumes of 450,000 (over 45 days) to 900,000 (over 90 days).  

Yet, despite the restriction and higher risk weight on unsecured loans, Bajaj Finance continued to maintain healthy credit growth in the December quarter.

Meanwhile, Bajaj Finance's new customer acquisition remained healthy as it acquired 3.85 million new customers (as against 3.1 million Y-o-Y and 3.6 million Q-o-Q)

Customer addition trend was largely in line with prior positive quarters, suggesting that the RBI ban did not have any outsized impact, analysts said.

That apart, the deposit book stood at Rs 58,000 crore and grew 35 per cent Y-o-Y/6 per cent Q-o-Q. Consolidated liquidity surplus stood at Rs 11,600 crore (vs Rs 11,400 crore Q-o-Q). Surplus liquidity declined to 3.7 per cent of AUM (vs 3.9 per cent QoQ).

 

Going ahead, Morgan Stanley, which has 'Overweight' rating and a target of Rs 10,000 on the stock, expects Bajaj Finance to end FY24 with AUM growth of 33-34 per cent Y-o-Y with a likely positive rub-off on margins.

Kotak Institutional Equities, on the other hand, expects 29 per cent Y-o-Y growth in AUM in FY24, factoring in the impact of the RBI's direction to increase risk weights on bank loans to NBFCs, and bank/NBFC's sectors lending to consumer loans (excluding housing, auto, MFI and gold.

"The move may likely prompt BAF to slow down its high loan growth as Bajaj Finance has a high share of unsecured loans (37 per cent of AUM) versus 7-36 per cent for peers," the brokerage said.

Analysts at ICICI Securities, too, cautioned that despite a healthy Q3FY24 update, they remain watchful of the impact of the RBI's move on the NBFC's profitability.

On the bourses, the stock of Bajaj Finance has slipped 5.8 per cent from its 52-week high level of Rs 8,190, touched on October 6, 2023. By comparison, the BSE Sensex is up 8.8 per cent during this period.