Bajaj Finance Shares Slip Despite Strong Earnings Momentum

One of the top non-banking finance companies (NBFCs) in India Bajaj Finance Ltd. saw its shares trade lower on Friday even though it reported another quarter of strong profit growth and increased its outlook. Bajaj Finance’s stock was quoting at Rs 6,932.80 on the NSE down Rs 48.80 or 0.71% on the day as of 3:59 pm. The 20-day average volume of 1.6 million shares had been exceeded by over 6.8 million shares that were traded.

Bajaj Finance Shares Slip Despite Strong Earnings Momentum

The pullback comes even as Bajaj Finance reported strong results for the March quarter late Thursday once again beating Street estimates. The NBFC posted a 22.6% year-over-year increase in earnings per share to Rs 233.46 for the period. Net profit jumped 24% to Rs 2,469 crore while total revenue was up 27% at Rs 10,295 crore.

Both the top-line and bottom-line figures comfortably surpassed analyst forecasts. Bajaj Finance has now recorded EPS beats in 7 out of the last 10 quarters. The robust Q4 performance capped off another fiscal year of impressive growth for the company. For FY24, Bajaj Finance’s consolidated revenue grew 27% to Rs 38,083 crore while net profit was up 30% at Rs 9,366 crore.

The strong momentum encouraged management to increase guidance and they now anticipate that assets under management (AUM) would expand by 27–29% in FY25 as opposed to 26% in FY24. Bajaj Finance also expects its customer franchise to reach 75 million by FY28, up from 62.4 million at the end of March 2024.

Robust Q4 Results and Upgraded Guidance Signal Growth Trajectory

The company’s new loans booked during Q4 increased 21% year-over-year to Rs 31,279 crore. Bajaj Finance added 2.73 million new loan customers in the latest quarter to hit a lifetime total of 62.4 million customers. Its products finance business continued dominating with a 57% share of new loans booked.

While net interest income grew a solid 26% in Q4. Bajaj Finance’s fee and other income remained muted rising just 5% from the year-ago period. This weighed on overall profitability metrics, with return on assets falling 30 bps to 3.9% and return on equity down 170 bps to 21.3%.

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The NBFC did continue making progress on asset quality with the gross NPA ratio declining 6 bps sequentially to 1.25% in Q4. Its capital adequacy ratio stood at a healthy 26.7%. The management anticipates a resurgence of fee income in FY25 which will increase the consolidated profitability ratios. It also expects a 25-27% growth in consolidated operating profit this fiscal year.

However, investors remained cautious on Bajaj Finance’s valuation. While the company guided for roughly 25% profit growth in FY25 its current price-to-earnings multiple of 30x forward earnings appears lofty compared to historical averages especially in the higher interest rate environment.

Bajaj Finance Faces Valuation Challenges Amidst Lower Earnings Yield

Bajaj Finance’s earnings yield of just 3.4% was well below FY25 bond yields limiting the stock’s appeal to institutional investors. The high valuation is likely capping any major upside potential in the near term.

Of the 32 analysts covering the stock the consensus recommendation remains a buy or outperform with 23 bullish ratings. However, 13% of analysts now rate Bajaj Finance as a hold while 12% have underweight or sell recommendations.

In technical terms the stock’s 14-day relative strength index of 57 indicates neutral momentum. Following Friday’s decline, Bajaj Finance moved closer to its 50-day moving average of Rs 6,892.

Bajaj Finance: Market Cap, Investors, and Valuation Analysis

The company’s market cap of Rs 4.29 lakh crore keeps it firmly entrenched as the second-largest NBFC behind leader Bajaj Finance. Its institutional shareholding is dominated by marquee investors like the Singapore government’s investment funds and SBI Group.

While Bajaj Finance’s growth prospects remain bright given its strong competitive positioning its premium valuation appears to be acting as an overhang on the stock in the current environment. More upside may depend on the company delivering another earnings beat next quarter to justify the lofty multiple.

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