Bajaj Finance's long range strategy lifts stock 5% higher

The consumer financier reported its highest-ever quarterly profit at Rs 2,973 crore in Q3FY23, up 40% YoY, aided by a healthy rise in NII and drop in provisions and contingencies

Bajaj Finance's long-range strategy (LRS) to funnel growth via various digital and offline products lifted the company's stock over 5 per cent in the intra-day trade on Monday. It, however, settled 4.67 per cent higher at Rs 6,025 per share as against the S&P BSE Sensex's 0.29-per cent gain.

"We raise our earnings estimate, but reduce valuation multiples, as competition intensity remains high especially in consumer finance and mortgage segments along with the company's plan to enter into risky microfinance business. However, re-rating can happen if the company executes a long range strategy framework and increases stickiness of new franchise customers," said analysts at Prabhudas Lilladher.

The consumer financier's five-year LRS framework, spread over 2023-27, encompasses various parameters viz. customer franchise, share of total credit, payments gross merchandise value (GMV), app installs, and web visitors among others. The strategy, which was presented to investors in a post-earnings call last Friday, identified 15 megatrends which will be a force multiplier in the framework.

Under the framework, Bajaj Finance launched loan against property (LAP) business for MSME customers in January, 2023; launched Bajaj + in January 2023; plans to launch New Auto Loans in Q2FY24, Micro Finance in Q4FY24 and Tractor financing in Q1FY25.

It also envisions to launch emerging corporate business in Q3FY24; deploy 8 megatrends by FY24 and balance 7 megatrends by FY25; launch Rewards as a platform in Q4FY24 and Social as a platform in Q2FY25; and open 100 locations annually in UP, Bihar and North East in FY24 and FY25.

The aim, Bajaj Finance said, is to dominate with 100 million customer franchise, a market share of 3 per cent of payments GMV, and 3-4 per cent of total credit and 4-5 per cent of retail credit. It also eyes return on equity (RoE) of 19-21 per cent.

The new products entry, planned in auto (including tractor financing), MFI and emerging corporate segments will aid business growth over coming years, said analysts at ICICI Securities. Digital transformation, client additions, and ambitious targets on asset under management (AUM) growth of 25-27 per cent CAGR would also boost profitability, it added.

In the October-December quarter (Q3) of financial year 2022-23 (FY23), the company added 3.14 million new customers to its franchise, taking the total customer franchise to 66.05 million. It booked 7.84 million new loans against 6.76 million in Q2FY23.

The AUM growth came in at 27.4 per cent YoY, increasing to Rs 2.31 trillion, driven by 29 per cent YoY growth in consumer business-to-consumer (B2C) finance, and surge in small and medium enterprises (SME), securities and commercial lending.

Mortgage also grew 26 per cent YoY growth to Rs 73,484 crore. Housing Finance AUM was at Rs 63,815 crore.

"The healthy AUM growth comes despite elevated competitive intensity in select segments such as home loans, business to business (B2B) finance, etc. LRS targets further emphasis on cross-selling, and the addition of new loan products," said HDFC Securities.

The brokerage has upgraded the stock to 'add' from 'reduce' after a near 20 per cent correction over the past three months.

Those at Kotak Institutional Equities, too, upgraded the stock to 'reduce' from 'sell'.

"Yet, we believe, Bajaj is likely to deliver a CAGR of 22-23 per cent in core profit before tax over FY2023-26, lower than the 24 per cent loan book CAGR, with 22-23 per cent RoE. We believe that Bajaj’s eventual conversion to the banking format poses a risk of de-rating," it said.

Bajaj Finance reported its highest-ever consolidated quarterly profit at Rs 2,973 crore in Q3FY23, up 40 per cent YoY.

Its net interest income (NII) rose 24 per cent YoY to Rs 7,435 crore. Asset quality improved with gross non-performing assets (GNPAs) at the end of Q3FY23 at 1.14 per cent compared to 1.17 per cent in the previous quarter. Similarly, net NPAs were down to 0.41 per cent, compared to 0.44 per cent in the previous quarter.

Technical View

Bias: Negative

Target: Rs 5,600

Resistance: Rs 6,030; Rs 6,130

Shares of Bajaj Finance have been trading with a negative bias since late October 2022 following the crossover of its 20-DMA below the 50-DMA. 

With today's strong rally, the stock is seen testing resistance at its 20-DMA at Rs 6,030-odd level, above which the next obstacles will be at Rs 6,130 the trend line resistance and the 50-DMA at Rs 6,380.

Failure to conquer and sustain above the 20-DMA, could trigger fresh selling pressure, with a possibility of the stock likely to test Rs 5,600 level on the downside.

Among key momentum oscillators on the daily chart, the 14-day RSI (Relative Strength Index) and the Slow Stochastic are seen bouncing back from oversold zones. The MACD, however, remains in neutral mode.

(With inputs from Rex Cano)