Bajaj Finance slides 5% as mgt flags rural, B2C stress post Q3 results

Despite an in-line December quarter, investors booked profit in shares of Bajaj Finance as the management turned cautious on B2C (business-to-consumer) and rural segment post the December quarter (Q3) results of financial year 2023-24 (FY24).

Shares of the Bajaj Group company tumbled 5.3 per cent to Rs 6,806 per share on the BSE in Tuesday's intraday trade. It ended 5.17 per cent lower at Rs 6,816 as against 1.12 per cent dip in the benchmark S&P BSE Sensex index and 0.47 per cent fall in the BSE Financial Services index.

Shares of Bajaj Finserv, meanwhile, settled 2.8 per cent lower.

Bajaj Finance's gross stage-3 (GS3) assets, or the loans that have not been paid by a borrower for at least 90 days, moved up by 4 basis points (bps) quarter-on-quarter (Q-o-Q) to 0.95 per cent, while net stage -3 (NS3) increased by 6bps Q-o-Q to 0.37 per cent in Q3FY24.

This was driven by urban sales finance (0.71 per cent GS3 vs 0.59 per cent Q-o-Q), Urban B2C (1.3 per cent GS3 vs 1.19 per cent Q-o-Q), rural sales finance (0.69 per cent GS3 vs 0.6 per cent Q-o-Q) and rural B2C (1.31 per cent GS3 vs 1.26 per cent Q-o-Q).

Its loan losses and provisions also surged 48 per cent year-on-year (Y-o-Y) to Rs 1,248 crore in the quarter under review.

"Bajaj Finance results show the first signs of stress. Their growth rates are too high despite the current tight liquidity scenario, even as they operate in the segments which have higher NPA build up," said Sandip Sabharwal, founder asksandipsabharwal.com.

During the October-December quarter, Bajaj Finance's consolidated net profit rose by 22 per cent Y-o-Y to Rs 3,639 crore, largely in-line with estimates.

Its net interest income (NII) rose by 29 per cent to Rs 7,655 crore in Q3FY24 from Rs 5,922 crore in Q3FY23.

Calculated net interest margin (NIM) declined 25bp Q-o-Q to 12.4 per cent while the reported NIM contracted 10bp Q-o-Q.

Net credit costs increased to 1.65 per cent at the end of Q3FY24 vs 1.54 per cent Y-o-Y due to elevated Rural B2C delinquencies and lower collection efficiencies in the Urban B2C segment.

"The key disappointment during Q3 results was higher credit costs. Though the management emphasised that issues in urban personal loan segment seem transient, they still raised credit cost guidance toward 1.75-1.85 per cent of asset under management (AUMs) (up by 15-20bps) on the back of normalisation of credit cost in 2/3 wheeler segment and others. We have factored these in our forecasts leading to a 1-2 per cent cut to our earnings estimates," said Prakhar Sharma and Vinayak Agarwal of Jefferies India.

That said, analysts believe the concerns around unsecured loans would settle over the next 2-3 quarters, keeping the medium-to-long term growth outlook intact.

BAF, they added, remains the one of the best plays on diversified consumption opportunity with strong risk mechanisms, high growth, and superior return ratios.

During Q3FY24, Bajaj Finance reported total AUM growth of 7.1 per cent Q-o-Q/35 per cent Y-o-Y with business to business (B2B), B2C, Commercial, and Housing segments growing at 51 per cent Y-o-Y, 28 per cent Y-o-Y, 39 per cent Y-o-Y, and 31 per cent Y-o-Y, respectively.

The customer franchise climbed to 80.4 million (up 22 per cent Y-o-Y/5 per cent Q-o-Q) and cross-sell franchise at 49.3 million (28 per cent Y-o-Y/ 6 per cent Q-o-Q).

"We estimate 29 per cent AUM CAGR over FY23-26E with continued momentum across existing product categories and opportunity in newer segments like non- Bajaj Auto two wheeler, loan against property (LAP), new car financing, and micro-finance (MFI)," said analysts at JM Financial.

BAF's current valuations at 23x FY25e/18x FY26e EPS, it added, are attractive given its strong return on assets (RoA)/return on equity (RoE) profile and ability to grow across cycles.