Bajaj Finance Second Quarter Preview: Anticipated 30% YoY Profit Growth; Margin Pressure Looms

Bajaj Finance

Anticipated Profit Surge for Bajaj Finance

In the upcoming July-September quarter, Bajaj Finance is poised to achieve an impressive 30% year-on-year increase in net profit, reaching a substantial figure of Rs 3,626 crore. This notable growth is attributed to its stable asset quality and a surge in loan activity. This prediction is consolidated from the consensus of five reputable brokerages. The official announcement of Bajaj Finance’s Q2 results is scheduled for October 17.

Robust Net Interest Income Growth

Analysts are forecasting a remarkable 34% increase in Bajaj Finance’s net interest income (NII), expecting it to reach Rs 7,420 crore, a significant climb from the previous year’s Rs 5,537 crore. Notably, Anand Rathi Institutional Equities, a prominent brokerage firm, predicts the highest NII for Bajaj Finance in Q2, estimating it to be Rs 8,398 crore.

Margin Pressure Concerns

However, it’s not all smooth sailing for Bajaj Finance. The analysts have raised concerns about the potential impact of increased borrowing costs, which could lead to a compression of net interest margins (NIMs) by 30 basis points (bps), bringing them down to 10.2% from the previous year. Sequentially, NIMs are also expected to contract by 20 bps from 10.4% in Q1. Additionally, there’s the looming threat of higher write-offs, which might result in credit costs increasing by 165 bps year-on-year and 12 bps quarter-on-quarter. In the preceding quarter, credit costs had already risen by 170 bps, compared to 155 bps in Q4 of FY23. It’s worth noting that the management has set a guidance of credit costs at 155-165 bps for the rest of the financial year.

Impressive Business Update

In their Q2 business update, Bajaj Finance revealed impressive statistics. The number of loans booked during the quarter witnessed a 26% surge, reaching 8.53 million compared to 6.76 million in the corresponding period of the previous year. Deposits also showed significant growth, increasing by 39% to Rs 54,800 crore from Rs 39,422 crore in the year-ago period. Furthermore, Bajaj Finance maintained a robust liquidity position, with a consolidated net liquidity surplus of Rs 11,400 crore at the end of September. The company’s assets under management experienced remarkable growth, reaching Rs 2.9 lakh crore in Q2, a notable increase from the Rs 2.1 lakh crore in the year-ago period.

Analysts’ Confidence in Bajaj Finance

Analysts at Jefferies have singled out Bajaj Finance as one of their top choices among Non-Banking Financial Companies (NBFCs). They point to the impressive growth in assets under management (AUM) in the business update, which exceeded their annual estimate of 29%. Morgan Stanley is equally optimistic, issuing an ‘overweight’ recommendation on the stock and raising the target price to Rs 10,300 apiece from the previous Rs 9,500. On the other hand, Citi remains ‘neutral’ on Bajaj Finance, mainly due to concerns in the B2C rural segment, which could lead to a 10-15 bps quarter-on-quarter increase in the lender’s gross non-performing assets. Nevertheless, many analysts believe that cost ratios have already peaked and anticipate a moderation from this point onwards.

Disclaimer: All investment-related information or advice presented in this content is for informational purposes and should not be considered as financial guidance or recommendations. It is crucial to consult with a certified financial advisor or expert before making any investment decisions, as risks are involved in all financial investments.

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