Bajaj Finance Q2 Results Review: Analysts Cut Target Price On Higher Credit Cost Guidance
Bajaj Finance increased its credit costs guidance to 2.00-2.05% for the current financial year from 1.75%-1.85% earlier.
After Bajaj Finance Ltd. increased its credit cost guidance for the current financial year, several brokerages have cut their target price and earnings estimates on the stock.
However, most of them have maintained their ratings on the stock, given the company's confidence in assets under management growth and stabilisation of net interest margins, analysts said.
Bajaj Finance increased its credit costs guidance to 2.00-2.05% for the current financial year from 1.75%-1.85% earlier, Managing Director Rajeev Jain said in a post-earnings analysts' call on Tuesday.
Brokerage Citi Research has cut its target price on the shares of Bajaj Finance by a little over 1% to Rs 8,150 per share, as it is building in higher credit cost and lower AUM growth. It has also lowered its earnings estimates by 2% for fiscals 2025 and 2026.
Despite the management's guidance of AUM growth of 27-28% on year for the fiscal, Citi conservatively expects AUM growth of 24-26% over 2024-25 to 2026-27. It has maintained its 'buy' rating.
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Jefferies has also lowered its target price by 3% to Rs 8,400 per share on the back of a cut in earnings and fall in value of Bajaj Housing Finance.
The brokerage has decreased its earnings estimates by 2-3% and expects earnings growth to improve towards the 20% mark in 2025-26, with healthy asset growth and stability in credit costs as well as margins. It has retained its 'buy' rating.
Yes Securities also lowered earnings expectations by 2% for 2024-25 and by 5% for the next year, mainly on increasing the credit cost assumption.
It has lowered its target price by 4% to Rs 7,950 apiece, but has maintained its buy call on supportive valuation and expectations of earnings growth improving from 2025-26.
Morgan Stanley also echoed a similar view and said that while there would be skepticism, given rising asset quality issues, attractive valuation and recent sharp underperformance presented a good opportunity for an entry point.
"While the valuations are attractive at 3.6 times P/BV and 19 times FY26E P/E, we believe the asset quality stress is becoming more broad-based and spilling over to product segments across its retail and SME offerings," Motilal Oswal Financial Services said in a report.
The brokerage does not expect any significant upside catalysts until the company successfully navigates challenges on the horizon. Consequently, it has maintained its 'neutral' stance on the stock with a target price of Rs 7,320 apiece.
