Q2FY24 Review: Bajaj Finance: In-line; growth momentum to sustain

18 Oct 2023 , 11:18 AM

BAF reported broadly in-line Q2FY24 results, with AUM/NII/profit growth of 33%/30%/28% YoY. Margins compressed 11bps QoQ (expected,) but were partially offset by lower opex. Addressing concerns around PL, BAF highlighted that the system-level delinquencies have inched up from 6.3% preCovid to 7.9%; led by stress in the sub-50K ticket size segment even as delinquencies in the larger-ticket size PL were lower than the FY20 levels. For BAF, 98% of its PL portfolio was current – similar to the pre-Covid levels. Analysts of IIFL Capital Services like BAF for its ability to deliver high growth and sustain sector-leading profitability (5% ROA and ~23% ROEs), even at scale. Retain BUY with a revised TP of Rs9,600. 

In-line results: 

BAF reported 28% YoY profit growth, in line with analysts of IIFL Capital Services estimates. This is on the back of 33% AUM growth (+7.5% QoQ), led by consumer B2B, SME and commercial segments. At 30% YoY (+7% QoQ), NII growth was weaker; as NIMs compressed 11bps QoQ (expected). Management attributed 60bps QoQ inch up in net slippages (1.9% ann.) to seasonality and expects it to correct in H2. GNPA and CC were flat QoQ at 0.9% and 1.5%, on higher write-offs and reduction in mgmt overlay. 

Strong growth momentum to sustain; capital raise and operating leverage to offset margin pressures: 

With strong growth in H1FY24 and a seasonally strong Q3, Analysts of IIFL Capital Services believe that BAF is on track to deliver 31% AUM growth in FY24. In H2, even as COF is set to increase 25bps for BAF, analysts of IIFL Capital Services expect minimal ROA drag as margins benefit from endowment effect (Rs100bn QIP) and on 10bps moderation in opex. Over the medium term, they expect BAF to sustain 30% AUM Cagr led by entry into new segments, distribution expansion for existing products, maturing branch vintage and increase in AUM/customer. 

Retain BUY with TP of Rs9,600: 

Analysts of IIFL Capital Services like BAF for its ability to deliver high growth and sustain sector-leading profitability (5% ROA and ~23% ROEs), even at scale. Further, BAF’s investments in new tech (Generative AI etc.) and operating leverage should enable it to deliver non-linear growth (~230 lo r C/I). Analysts of IIFL Capital Services incorporate Rs100bn capital raise and raise analysts of IIFL Capital Services estimates by 1-3% and TP to Rs9,600 (from Rs9,200) as per their RISQ valuation framework, implying 5.7x 2YF P/B for 23% ROEs.