Bajaj Finance Q3 Results Review - Lower Margins, Higher Credit Cost Impact Profitability: Systematix

Systematix Report

Bajaj Finance Ltd.'s Q3 FY24 operational performance was in-line with consensus estimates. Net interest income/operating profit came in at Rs 76.5 billion / Rs 61.4 billion (versus consensus estimate of Rs 75.7 billion / Rs 62.1 billion) registering a growth of 29% YoY/ 27% YoY.

Net interest margin declined by 11 basis points QoQ mainly due to higher cost of funds. The company has increased rates by 20-30 bps across all products w.e.f January 1, 2024 to mitigate higher incremental cost of funds and increase in risk weights.

Assets under management growth was strong at 35% YoY led by strong growth across product segments (ex-Rural B2C). The growth in the rural B2C segment has slowed down (2.6% QoQ) as management remains cautious of delinquency trends in this segment.

Asset quality broadly steady with GS3/NS3 at 0.95%/0.37% (up 4 bps / 6 bps QoQ). Credit cost elevates to 1.7% (up 12 bps QoQ) mainly due to stress in Urban/ Rural business-to-consumer segment.

As a result, profit after tax came in marginally lower than consensus estimate at Rs 36.3 billion registered a growth of 22% YoY.

Bajaj Finance has delivered a healthy ~25% AUM compound annual growth over the last five years driven by its strong customer acquisition via omni channel strategy and cross selling of loans. At current market price, Bajaj Finance is trading at ~4 times FY26 book value (consensus), we believe the recent correction in stock offers good entry opportunity.

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