CLSA upgrades Bajaj Finance as it logs record customer, loan growth in Q4

Loans booked by consumer financier Bajaj Finance jumped 20 per cent YoY to 7.6 million in Q4FY23, taking the total loans booked by the lender in FY23 to 29.6 million, its highest-ever in a year

Bajaj Finance's quarterly business update, coupled with around 24 per cent fall over the past six months, has turned risk-reward favourable for investors, observe analysts. They see up to 39 per cent upside in the stock, from a one-year perspective.

Global brokerage CLSA, for instance, has upgraded the stock from 'underperform' to 'outperform' with an increased one-year target price of Rs 6,600 (vs Rs 6,000 earlier) as it believes the risk-reward has turned favourable for the counter, and there is scope for expansion if growth remains robust.

"The sequential loan growth was faster in Q4 than in Q3, which is a festive quarter. Importantly, after a couple of quarters of single-digit volume growth, the company delivered 21 per cent loan volume growth in Q4. While this is still below pre-Covid levels, it is better than expectations due to better lending environment, and management execution," it said in its recent report. 

Those at Morgan Stanley, who have a 12-month target of Rs 8,000, meanwhile, believe the company seems to "going from a run-rate of 8-10 million to 10-12 million".

The observation comes  Bajaj Finance's customer franchise expanded by 3.1 million in the January-March quarter (Q4) for financial year 2022-23 (FY23), taking its customer franchise to 69.1 million. 

In FY23, the lender acquired 11.5 million customers, its highest-ever in a financial year.

Loans booked, meanwhile, jumped 20 per cent year-on-year to 7.6 million for the quarter under review, taking the total loans booked by the lender in the financial year (FY23) to 29.6 million, its highest-ever in a year.

Deposits, too, aggregated to Rs 44,650 crore at the end of FY23, up 45 per cent from the year-ago period. Sequentially, however, deposit growth momentum slowed to 4 per cent owing to higher term-deposit rates offered by banks, and Bajaj Finance intentionally raising borrowing through other instruments.

Its core asset under management (AUM) rose 29 per cent YoY to Rs 2.47 trillion as of March 31, 2023. AUM growth in Q4 was to the tune of Rs 16,500 crore.

"AUM growth was in-line with our estimate, with the reported AUM standing at Rs 2.47 trillion, up 25 per cent YoY, and 7.2 per cent QoQ. Core AUM (excluding IPO Financing) grew 29 per cent YoY. Core AUM growth suggests that disbursements were strong across product segments," said analysts at Motilal Oswal Financial Services. 

On the bourses, shares of Bajaj Finance surged 4.1 per cent in the intra-day trade, before settling 0.92 per cent up at Rs 5,766 per share. By comparison, the Nifty50, and Nifty Financial Services indices gained 0.91 per cent, and 1.14 per cent.

The stock has recovered 10 per cent from its 52-week low level of Rs 5,235, which it had touched on June 17, 2022. The stock had hit a 52-week high of Rs 7,777 on September 22, 2022.

That said, analysts caution that Bajaj Finance may see tapering of supernormal profits with low yielding assets incrementally adding to the loan book.  

Last month, Ambit had initiated coverage on Bajaj Finance with a 'sell' rating, and a target price of Rs 5,028.

"A combination of high market share in existing products, limited size of high yield loan market, increasing competition from banks in personal/SME/home loans, and inability to grow liabilities and further bring down cost of funds could result in loan growth slow down and contraction in net interest margins (NIMs) going forward. We are building in EPS CAGR of 30 per cent (FY22-25) with average RoE of 22 per cent. Over FY25-42E, we are building in 19 per cent loan growth and 20 per cent RoE," it had said.