Bajaj Finance exceeds expectations in Q3, but stock valuations already costly

Analysts say growth is in a strong position. Bajaj Finance net interest income grew 41% year-on-year. The firm has also reported the highest core assets under management (AUM) of Rs 14,700 crore in a quarter. “AUM growth was broad-based with all sectors contributing to growth except the auto finance business, which also lagged behind in the quarter,” said Sharekhan analysts. As on 31st December, AUM grew by 26%- year over year 181250 crores. Note that if the third Covid wave does not create disruption, Bajaj Finance expects Q4 and FY22 AUM growth to remain strong. The company said that the pace of business has not been affected so far in January.

Looking ahead, Bajaj Finance expects AUM growth of 25% to 27%. Nevertheless, the company Omicron remains conservative due to the growing threat of coronavirus and thus increased overlay provision 832 crores till 30th September 1083 crores till 31st December.

Gross and net non-performing assets (NPA) ratios hit pre-Covid levels as they declined from 2.45% and 1.10% respectively in Q2FY22 to 1.73% and 0.78% respectively in Q3FY22. Deposits grew 28% year-on-year 30481 crore and contributed 20% to the overall borrowing.

Going forward, the company aims to achieve stronger consumer momentum, better customer experience and lower costs and risks through its business transformation strategy. With the increase in adoption of the new mobile app, Bajaj Finance expects annual customer franchise growth to increase to 8-9 million from the earlier guidance of 7-8 million. The company is on a digital transformation journey, the progress of which will be closely monitored by investors in the coming days.

Having said that, investors can hardly complain. After all, shares of Bajaj Finance have gained almost 50% in the past one year. Analysts at Kotak Institutional Equities said, “Bajaj Finance stock has rallied significantly over the past year, outperforming most BFSI peers based on higher interest levels in its transformation exercise and the potential generated by its proposed digital ecosystem. has done.” Report on 18 January. Additionally, expectations of higher valuations of fintech companies ahead of the listing of Paytm’s parent One97 Communications Ltd also helped the sentiments.

Kotak analysts further added, “We believe that the initial phase of enthusiasm on the app is behind us and Bajaj’s ability to execute seamlessly on its well articulated strategy remains critical. Bajaj’s management has been strong in the past. Demonstrated execution prowess, but in light of high investor expectations, any bearish/disappointment on digital transformation could weigh on the stock.”

After the results, shares of Bajaj Finance opened higher in morning trade on Wednesday, with broad market weakness putting pressure on the stock later.