Q3FY24 Review: Bajaj Finance: Marginal miss; mgmt. changes give visibility on succession with Rajeev continuing to be at helm

30 Jan 2024 , 12:11 PM

BAF’s Q3FY24 numbers missed analysts of IIFL Capital Services ests by 3% owing to weaker fee income, but missed consensus ests by 2% due to higher credit costs offset by lower than expected NIM compression. AQ trends were weak in B2C segments, driving management to raise credit costs guidance for FY24 by 10bps even as it holds 20bps of management overlays. BAF intends to approach RBI with requisite changes in next few weeks which could pave the way for listing of regulatory restrictions. Management changes underway at BAF give visibility on its succession planning with Rajeev continuing to be at the helm of affairs at Bajaj. Retain BUY with TP of ₹9,000, implying valns in-line with its LTA for its ability to deliver superior AQ outcomes and growth vs peers. 

Marginal miss; credit cost guidance raised, partly offset by lower than expected NIM compression:

BAF reported Q3FY24 PPOP / net profits that were 2%/3% below analysts of IIFL Capital Services estimates due to weaker fee income (regulatory restriction). Credit costs were 3bps higher than analysts of IIFL Capital Services ests vs 12bps for consensus offset by lower than expected NIM compression. AQ trends were weak with gross stage 2 and 3 inching up by 7bps QoQ led by higher delinquencies in rural and urban B2C. Consequently, management raised credit cost guidance for the full year by 10bps to ~165-170bps (net of ~Rs400bn overlay utilised). 

Management changes underway: 

In-line with its succession plans, BAF elevated Mr. Anup Saha as Deputy MD and will oversee most of the businesses but will report into Rajeev Jain, who shall be actively involved chalking the strategy of the company apart from directly responsible for commercial, risk, compliance, internal audit and information security. Additionally, company also appointed three COOs to taken functions of Rakesh Bhatt, who will be moving on from BAF. 

Retain BUY with TP of ₹9,000: 

Analysts of IIFL Capital Services cut their ests by 1-3% as they raise CC by 5bps to 175bps for FY24-26 given the macro. With valns at LTA, analysts of IIFL Capital Services like BAF for its ability to deliver superior AQ outcomes & growth vs peers. Retain BUY with TP of ₹9,000 (from ₹9,300), implying 5.1x FY26 P/B for 24% EPS growth and 4.4%/22.5% ROAs/ROEs