Bajaj Finance stock price crashes 8% post Q4; MOFSL downgrades to 'Neutral'

Bajaj Finance stock price news: Motilal Oswal Financial Services has downgraded the stock due to more margin pressure in FY25

Bajaj Finance Q4FY24 results: Investors shunned shares of Bajaj Finance on Friday, a day after the non-bank finance company (NBFC), reported a sharp contraction in its net interest margin (NIM) in the March quarter of financial year 2023-24 (Q4FY24).  

The shares crashed 8.2 per cent intraday, before settling 7.7 per cent lower at Rs 6,730 apiece on the BSE. The losses accounted for a fifth of the benchmark S&P BSE Sensex's 609-point loss. 

Most brokerages have tamed their earnings expectations for the next couple of quarters, after the management said it expects the pressure on NIMs to continue in the near-term.

"While the management maintained its asset under management (AUM) growth guidance at 26-28 per cent in FY25, likely net interest margin (NIM) compression in H1FY25 and revised credit cost to 1.85 per cent versus 1.7 per cent pre-Covid is likely to keep earnings under pressure during H1FY25," said analysts at ICICI Securities.

Bajaj Finance's net interest margin (NIM) in Q4FY24 contracted sharply by 20 basis points to 10 per cent on a quarter-on-quarter (Q-o-Q) basis due to an increase in cost of funds (CoF) and a gradual shift in AUM composition towards secured assets.

Going ahead, the management has guided for further NIM pressure, at least in the first half of FY25 along with peaking of cost of funds (CoF) by July-August, 2024, and pivot towards secured assets AUM stabilising by September 2024. Accordingly, the management expects a 30-40 bps moderation in NIM over the next two quarters from current levels.

Domestic brokerage Motilal Oswal Financial Services has downgraded the stock to 'Neutral' with a reduced target price of Rs 7,800.

"While we admire Bajaj Finance for being the strongest NBFC franchise with astute execution, our downgrade to Neutral rating on the stock is predicated on the near-term headwinds on AUM growth; likely NIM compression of 35bp in FY25; and elevated credit costs from the B2C portfolio in almost all of FY25," the brokerage said in their result review report.

In Q4FY24, Bajaj Finance's total customer franchise stood at roughly 83.6 million, up 21 per cent year-on-year (Y-o-Y) and 4 per cent Q-o-Q. New customer acquisitions came at 3.2 million versus 3.1 million Y-o-Y and 3.85 million Q-o-Q. 

New loans booked rose 4 per cent Y-o-Y to 7.9 million as against 7.6 million in Q4FY23. The new loans booked during the quarter were lower by ~0.8 million sequentially on account of restrictions placed by the Reserve Bank of India (RBI) on disbursal of loans under 'eCOM' and 'Insta EMI Card'.

Total AUM, thus, grew 34 per cent Y-o-Y and 6 per cent Q-o-Q to Rs 3.3 trillion. The rural business to customer (B2C) business exhibited muted AUM growth given that Bajaj Finance has cut business volumes in this segment in the face of higher delinquencies. The urban sales finance business was hit by the RBI embargo on ecommerce and digital Insta EMI Cards.

Operationally, Bajaj Finance's operating expenditure (Opex) grew 25 per cent Y-o-Y to Rs 3,300 crore, and the opex-to-NII was stable Q-o-Q at 34 per cent in Q4FY24.

Net credit costs in Q4FY24 stood at 180bp. Credit costs were higher due to the elevated Rural B2C delinquencies. The management has guided for gross credit costs of 1.75-1.85 per cent in FY25. 

"The management's guidance for FY25 is below its long-term guidance on multiple metrics such as AUM growth, credit costs, return on asset (RoA), and return on equity (RoE). Bajaj Finance's key product segments (until now) have been the secular growth segments. However, its foray into multiple newer products such as cars, tractors, commercial vehicles (CVs), and potentially micro-finance (MFI), could (in future) make its growth vulnerable to cyclicality despite having a well-diversified product mix. Thus, despite a healthy PAT CAGR of 25 per cent over FY24-FY26, and an RoA/RoE of 4.3 per cent/22 per cent in FY26E, we see limited upside catalysts," MOFSL said.

That said, from a long-term perspective, analysts remain positive on Bajaj Finance due to its resilient business model, built on strong customer acquisition engines and cross-sell opportunities.

Analysts at Kotak Institutional Equities have maintained their 'Add' rating on the stock with an unchanged target price of Rs 7,800. "Though we have cut estimates by 4-6 per cent for FY25 and FY26, we expect Bajaj Finance's overall profitability to remain healthy with RoE of 22-23 per cent," it said.