Bajaj Finance shares: Bajaj Finance, a non-bank finance lender, saw its shares drop approximately 8 percent in early trading on April 26 following the release of its Q4 earnings report, which revealed a decrease in net interest margin. The company experienced a 21 basis point erosion in net interest margin during the fourth quarter compared to the previous quarter, settling around 10 percent.
By 11:42 am, Bajaj Finance shares were being traded at Rs 6,744 on the NSE, reflecting a decrease of more than 7 percent.
Kotak Institutional View
Despite the lender’s earnings appearing to be in line, Kotak Institutional Equities, a brokerage firm, anticipates that normalization in business parameters, such as mid-20s growth, net interest margin compression due to increasing rates and changes in business mix, and a reversal in credit costs, will exert near-term pressure and lead to EPS reductions for Bajaj Finance, despite its overall healthy performance.
Kotak recommends adding Bajaj Finance to your portfolio with a target price of Rs 7,800.
MOFSL View
Motilal Oswal Financial Services (MOFSL) is not impressed with Bajaj Finance’s performance in Q4FY24. MOFSL believes that the management’s guidance for FY25 falls short of its long-term guidance across various metrics including AUM growth, credit cost, RoA, and RoE.
MOFSL is doubtful about Bajaj Finance’s choice to expand into several new products such as financing for cars, tractors, and commercial vehicles, and potentially lending to MFIs. They believe this expansion could expose growth to cyclical risks, despite Bajaj Finance having a well-diversified product mix.
MOFSL anticipates near-term challenges for Bajaj Finance’s AUM growth. This is due to the company reducing its business activities in rural B2C, and AUM growth in the B2B segment slowing down following the RBI ban on e-commerce and Insta EMI card.
MOFSL stated that Bajaj Finance is anticipated to experience a further 35 basis points compression in margins during FY25. This is attributed to the projected increase in borrowing costs, challenges in transferring interest rate hikes to customers, and alterations in the product mix.
Taking into account all these factors, the brokerage revised its recommendation for the stock to ‘Neutral’, setting a price target of Rs 7,800.
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Citi View
Citi has reduced its price target for Bajaj Finance to Rs 8,675 while keeping its ‘Buy’ rating unchanged. Based on the company’s guidance for a 30-40 bps NIM moderation in H1FY25, Citi adjusted its earnings estimates for the lender, lowering them by 7 percent for both FY25 and FY26.
