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Bajaj Finance Shares Tumble 5% Post Q4FY22 Results; Should You Buy, Hold or Sell?

Bajaj Finance Q4FY22: Bajaj Finance shares slipped 5 per cent in Wednesday’s trades to Rs 6,855 on the BSE in intra-day trade despite registering strong growth in net profit by 80 per cent year on year (YoY) at Rs 2,420 crore for the fourth quarter that ended in March 2022 (Q4FY22).

Yesterday, Bajaj Finance reported a 79.7 per cent year-on-year (y-o-y) rise in consolidated net profit to Rs 2,420 crore due to higher net interest income and lower provisions. Bajaj Finance’s net interest income (NII) surged 30 per cent y-o-y to Rs 6,068 crore in the March quarter.

The other large component of its revenues was in the form of fees and other income of Rs 1,164 crore, up 51 percent from the same period last year. The total AUM of the company grew 29 per cent to Rs 1.97 trillion as on 31 March on a consolidated basis. The book of Bajaj Housing Finance Ltd stood at Rs 53,322 crore in the same period and is included in the consolidated numbers.

Bajaj Finance: Should You Buy, Sell or Hold The Stock?

Brokerage house Motilal Oswal said Q4FY22 was a healthy quarter for Bajaj Finance, with all-round momentum across key business parameters. Customer acquisitions and trajectory in new loans remain strong. This momentum will only get stronger with its digital ecosystem: app, web platform, and full-stack payment offerings.

“We expect BAF to deliver a healthy AUM CAGR of 25 per cent over the next two years. We expect it to contain credit costs 1.7 per cent in FY23. Even though the management has guided that it will prioritize margin over loan growth, NIM compression is likely in FY23, as levers like normalization in excess liquidity and borrowing costs have largely played out. The competitive landscape also continues to remain aggressive. We cut our FY23/FY24 PAT estimate by 4 per cent each to factor in potential NIM compression and a higher OPEX ratio of 35 per cent over the next two years. The company should deliver an RoA/RoE of 4.2-4.4 per cent/21-22 per cent over the medium term. We maintain our buy rating with a target price of Rs 8,350 per share (8x FY24E BVPS),” Motilal Oswal said.

Bajaj Finance missed CLSA’s Q4 PAT estimates by 9 per cent on account of a 6 per cent NII miss. The brokerage firm has been highlighting the growing disconnection between the valuations of top-quality banks and Bajaj Finance over the past year, more so in the context of shrinking growth outperformance. “We cut our FY23/24 PAT estimated by 8 per cent/9 per cent and our target price by 8 per cent from Rs 6,500 to Rs 6,000. We maintain out Sell rating given a rich valuation.” It recommended investors to switch to private sector banks in the large-cap lending space.

ICICI Direct analysts believe that Bajaj Finance is a dominant player in the consumer finance space and since the fin-tech story is embedded in this business, valuations should stay at a premium. “The digital web platform, similar to the app is the new strategy in FY23. We raise PAT estimates for FY24 by 17.8 per cent,” they said. Digital transformation with robust customer additions and wallets is expected to boost profitability factoring in initial cashback as part of opex, no impact on profit. According to the brokerage firm, Bajaj Finance’s core business has got potential and is well on track to get transformed into an adaptable new-age fin-tech. No plans to convert to a bank on an immediate basis. It maintains ‘buy’ rating on the stock with a target price of Rs 9,500 per share, implying 31 per cent potential rally in 12 months.

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