Company Introduction

Bajaj Finance Limited is India's leading non-banking finance company (NBFC). It is a subsidiary of Bajaj Finserv Limited and a part of the Bajaj Group. The company provides finance for two-wheelers, consumer durables, personal computers, personal loans, insurance services, and SME loans. The NBFC operates a network of ~4000 branches across the country. With an AUM of ~ INR 3,30,000 Cr. as of March 2024, Bajaj Finance is the largest NBFC as per AUM.

Financial Performance

• The company's AUM was up 34% at INR 330,615 Cr. as of March 31, 2024, compared to INR 247,379 Cr. as of March 31, 2023.
• In Q4 FY24, NII grew by 28% to INR 8,013 Cr., while net total income grew by 25% to INR 9,714 Cr.
• Consolidated pre-provisioning operating profit grew by 25% to INR 6,412 Cr. in Q4 FY24, while consolidated profit after tax grew by 21% to INR 3,825 Cr.
• New loans booked were up 4% to 7.87 million in Q4 FY24, compared to 7.56 million in Q4 FY23.
• In Q4 FY24, the cost of funds was 7.86%, an increase of 10 bps over Q3 FY24.
• The deposits book grew by 35% year-over-year and stood at INR 60,151 Cr. as of March 31, 2024, contributing to 21% of consolidated borrowings.
• The company delivered an annualized ROA of 4.84% and an annualized ROE of 20.48% in FY24.

Mool's Narrative

Robust customer acquisition: Bajaj Finance added a record 14.5 million new customers in FY24, demonstrating its strong customer acquisition capabilities, and it remains confident of adding 12-14 million new customers in FY25, indicating sustained growth in its customer franchise.

Steady AUM growth: The company achieved a strong consolidated AUM growth of 34% in FY24, and it has provided well-defined long-term guidance, estimating an AUM growth of 26-28% in FY25, supported by newly launched secured businesses like LAP, new car financing, and tractor finance.

Margin Management and Return Ratios: Bajaj Finance expects a 30-40 bps moderation in NIM over the next two quarters due to the increasing cost of funds and a business shift towards secured assets. Despite the low growth expectations in FY25, the company is committed to its long-term guidance on RoA of ~4.8%.

Network Expansion: The company operates in over 4,000 locations in India. The aim is to increase its presence to 5,500 locations by FY28E.

Operational Efficiency: The company expects to improve its Operating Expenses to Net Total Income (Opex to NTI) ratio by 20-40 bps from current levels, indicating a focus on enhancing operational efficiencies.

Credit Quality: Bajaj Finance's loan losses to average AUF (adjusted for the release of management overlay) were 1.82% in FY24, and it expects this metric to remain within the range of 1.75%-1.85% in FY25, reflecting its strong credit risk management capabilities.

NPA Management: GNPA & NNPA stood at 0.85% & 0.37% as of 31 March 2024 as amongst the lowest in the industry. The management has guided for a sustained lower GNPA & NNPA for the long term.

Valuation and Recommendation

We value the stock at 4.5x FY2026E Adjusted Book Value (ABV), with a target price of INR 7965, a projected upside of 18% over the next 18 months.

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We recommend a "BUY" rating on Bajaj Finance Limited based on the robust return on assets and steady AUM growth.

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Disclaimer:

Mool Capital Limited is a SEBI Registered Research Analyst having registration no. INH000012449. This report has been prepared by Mool Capital Pvt. Ltd. and is solely for information of the recipient only. The report must not be used as a singular basis of any investment decision. The views herein are of a general nature and do not consider the risk appetite or the particular circumstances of an individual investor; readers are requested to take professional advice before investing. This document is not, and should not, be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report should not be construed as an invitation or solicitation to do business with Mool Capital. Mool Capital and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.