Should you buy, sell or hold Bajaj Finance post-Q4 results?

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Brokerages are bullish on Bajaj Finance after the company’s net profit rose 42% to Rs 1,347 crore in the January-March period from Rs 948 crore a year ago.

Net interest income fell 2.4% to Rs 4,569 crore at the end of the March quarter, compared to Rs 4,684 crore a year ago. Bajaj Finance’s gross non-performing asset ratio improved to 1.79% in March 21 quarter compared to 2.86% in December 20 quarter. While its net non-performing assets rose to 0.75% of its total advances, compared to pro forma net NPA of 1.22% in the preceding quarter. Loan loss provisions in the fourth quarter stood at Rs 1,231 crore, down 37% year-on-year from Rs 1,954 crore.

Here’s what brokerages have to say about the company’s performance:

Sharekhan | Target Price: Rs 6,000 | Upside: 23%

Business transformation steps that are underway for Bajaj Finance, would not only be positive for business sustainability, scalability, but also position the company to take advantage of a strong economic upturn expected in FY2022E. Business transformation, as well as relations with Banks partners will help diversify business channels. The drag on margins due to liquidity buffers continued in Q4 as well. We believe armed with factors such as a strong balance sheet, robust risk management, and prudent management, Bajaj Finance is a strong franchise for the long term and is well placed to ride over medium-term challenges.

Motilal Oswal | Target Price: Rs 5,865 | Upside: 20%

Growth drivers back in place, we expect BAF to deliver ~25% AUM (assets under management) CAGR (compounded annual growth rate) going forward. FY22 is also likely to see margin improvement with a reduction in negative carry as excess liquidity would reduce, the continued fall in cost of funds, and a shift in the asset mix toward high yielding assets. With greater clarity on the stressed pool, we cut FY22E credit cost estimate by ~20bp to 1.6%. We estimate ~4.8% RoA / 22% RoE over the medium term. Bajaj Finance’s return ratios have not only been consistent but are also the highest in our coverage universe after the gold financiers.

Yes Securities | Target Price: Rs 5,500 | Upside: 13%

Bajaj Finance is confident about delivering 20%+ AUM and earnings growth in FY22. Despite the lockdowns becoming pervasive in the past 7‐10 days, the co. continued to originate 50‐55% of daily volumes in B2B business, 80‐85% in B2C and SME businesses and 40‐50% in mortgages. Management believes that the impact of lower business volumes in the first quarter could be reasonably mitigated in the balance three quarters of the year. With improved bounce rates, higher collection efficiency and overlay provisions (55‐60bps of AUM), the company is better positioned to navigate any temporary stresses on account of the second COVID wave.

RoA (Return on assets) moving closer to 5% in FY23 on the back of core cost/income improvement and normalisation of credit cost. The company can deliver 22‐23% RoE (return on equity) with controlled leverage. Structural growth and earnings resilience intact, the threat to current high valuation is low.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing)