“Bajaj Finance reported yet another strong quarter, marginally ahead of our expectations, driven by robust AUM growth of 31%/7% YoY/QoQ, stable NIMs (calc. at 10.5%), normalized credit costs driving healthy earnings growth of 88%/7% YoY/QoQ,” said Axis Securities.
“AUM growth was driven by continued traction across products, especially the rural segment (+34% YoY, +4% QoQ) and mortgages (+31% YoY, +8% QoQ). The auto financing segment continued to de-grow (-5% YoY, +2% QoQ), however, the management remains confident of growth returning in the segment as Bajaj Finance exits FY23,” it added.
The brokerage believes that digital initiatives and business transformation are key positives to look forward to and Bajaj Finance is currently progressing well with sequential improvement visible across metrics. AUM growth in the company has sustained with demand pick-up across key products and is expected to remain buoyant over the medium term.
“Expectations of a robust festive demand should reflect in the growth in Q3FY23 and we expect Bajaj Finance to exit FY23 on a strong footing. Over the medium term, we expect AUM to grow at ~26% CAGR,” the brokerage said.
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The intensifying competition, increasing interest rates and scaling up of the housing book (lower yields) are likely to weigh on the margins, however, Bajaj Finance continues to remain committed to maintaining margins, it said.
“With the investments in the digital journey now nearing completion, we expect cost ratios to gradually moderate to normalised levels as operating leverage kicks in. Strong fee incomes, improving Opex ratio and normalised credit costs should partially offset the impact of NIMs and help Bajaj Finance continue to deliver strong RoAs of ~4.6-4.7% over the medium term,” it added.
Asset quality metrics are currently at better than pre-Covid levels. GNPA/NNPA improved to 1.17/0.4% vs 1.25/0.5% QoQ. Stage 2 assets reduced marginally to 160bps from 170bps QoQ. The restructured book declined to Rs. 341 crore (0.16%) vs QoQ Rs. 474 crore (0.23%). Collections have been holding up well in all segments except 2/3-wheelers, which continues to be classified as ‘yellow’ as per the company’s internal classification.