Shares of Bajaj Finance surged 4.2% to a day’s high of Rs 6,958.50 on the BSE after the company reported a 13% increase in net profit for the quarter ended September 2024, reaching Rs 4,000 crore compared to Rs 3,551 crore in the year-ago period.
The company reported a consolidated profit after tax of Rs 4,014 crore ($477.6 million) in the three months to Sept. 30. Analysts, on average, had expected Rs 4,343 crore, as per estimates compiled by LSEG.
Consolidated numbers include the non-banking financial company’s (NBFC) subsidiaries, Bajaj Housing Finance and Bajaj Financial Securities.
While demand for consumer credit – including credit card spends – has remained strong over the last few quarters, the quality of lenders’ unsecured loans is showing signs of stress due to continuing pressure on cash flows in certain segments, India Ratings said earlier this month.
Bajaj Finance’s loan losses and provisions grew 77% on-year to Rs 1,909 crore.
Its gross non-performing asset ratio – the ratio of bad loans to total lending – deteriorated to 1.06% at the end of September, from 0.91% a year earlier.
The NBFC has been grappling with elevated losses in the last few quarters, especially in the personal loan segment in rural regions. It reported lower-than-expected profit in the first quarter as well, hurt by higher funds set aside to cover potential bad loans.
Its interest income rose nearly 28% to Rs 14,987 crore, driven by a 29% year-on-year rise in its assets under management.
Net interest income, the difference between interest earned and paid on borrowings, grew 23% to Rs 8,838 crore.
What Should Investors Do?
JPMorgan has maintained its ‘Overweight’ rating on Bajaj Finance but has cut the target price from Rs 8,000 to Rs 7,300.
The report highlights credit overshoot and asset quality strain in the second quarter.
However, loan growth remains robust at 29% year-on-year (YoY), with new business contributions at 2-3%. JPMorgan expects margins to stabilize as funding costs peak, though it notes that the business mix will likely remain adverse.
Jefferies has maintained a ‘Buy’ rating on Bajaj Finance but reduced the target price to Rs 8,400 from Rs 8,620.
The Q2 results were in line with expectations, and earnings growth is projected to improve from FY26. Credit costs remain high, but management expects a decline by FY26. Asset growth remains healthy, supported by stable net interest margins (NIMs). Jefferies views the company’s valuations as reasonable, with a price-to-book (PB) ratio of 3.8x and a price-to-earnings (PE) ratio of 20x for FY26.
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