Shares of Bajaj Finance fell for the second consecutive session this week, leaving investors jittery in a volatile market.
With the ongoing correction, the market cap of Bajaj Finance has slipped by 90 billion (bn) to Rs 3.3 trillion (tn) in a matter of ten days.
The stock has faced similar declines in the past too. In 2022, Bajaj Finance demonstrated a subpar performance for the first time in 14 years.
The word on the street is that the stock could be in for a major correction and the worst is yet to come.
At the time, we covered a detailed editorial on the stock - Bajaj Finance: death at a funeral.
Bajaj Finance shares are now again stuck with another blow.
Here is why the company's share price is falling.
#1 Increasing competition in home loan market
Bajaj Finance is encountering several difficulties in expanding its operations due to stiff competition in the home loan sector.
The firm commands a significant market share in MSME/personal loans among NBFCs, where banks are increasingly challenging their dominance.
Its deceleration in growth is primarily attributable to its large size and intensifying competition. Notably, the firm has already achieved an impressive 23% compound annual growth rate (CAGR), which remains unmatched by any other Indian bank, non-banking financial company (NBFC), or housing finance company (HFC) over the last few decades.
Additionally, Bajaj Finance holds a significant market share of 45% in the NBFC segment's commercial/personal loans, with rising competition from banks.
The cost of funds is likely to be 2.5% higher than large banks which makes it uncompetitive. Growth in home loans for Bajaj Finance is expected to negatively impact RoA (Return on Asset) /RoE (Return on Equity) due to low NIM.
#2 Asset growth to slow down
As an NBFC, scaling up adequate liabilities is likely to be challenging due to regulatory limits on deposit mobilization and capital providers' exposure to NBFCs.
Furthermore, the narrowing of growth differentials has caused a decline in valuations due to the faster loan growth at banks and other NBFC stocks fueled by strong sector tailwinds.
Further, it faces hurdles in accelerating its retail liabilities growth as it lacks access to low-cost CASA (current account and savings account) deposit.
Additionally, if interest rates continue to rise it may negatively impact Bajaj Finance's margins as it may not be able to pass on the additional rate hikes due to the steep interest rate hike observed in the past ten months.
How Bajaj Finance shares have performed recently
Bajaj Finance shares have declined by more than 8% in a month. Over the past week, the company's shares are trading lower by 2%.
On a YTD basis, Bajaj Finance share price is down 14%.
Bajaj Finance touched its 52-week high of Rs 7,778 on 22 September 2022 while it touched a 52-week low of Rs 5,220 on 17 June 2022.
About Bajaj Finance
Bajaj Finance is a deposit-taking non-banking finance company (NBFC) with a diversified loan portfolio and a pan-India presence.
While the company was originally set up to provide finance for the purchase of two-wheelers and three-wheelers manufactured by Bajaj Auto, it diversified into other segments over the years.
Currently, it operates across seven broad categories - consumer lending, mortgages, commercial lending, rural lending, SME lending, deposits, and partnerships & services.
Under partnerships & services, the company offers products like health insurance, extended warranty, comprehensive asset care, co-branded credit cards and wallets.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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