Shares of Bajaj Finance dropped nearly 3 percent in intra-day trading on Wednesday after the non-banking financial company (NBFC) released its Q1 earnings report. The results failed to impress several brokerage firms, raising concerns about the stock’s near-term performance remaining subdued.

The stock lost as much as 2.8 percent to hit its intra-day low of ₹6,543.20. The NBFC stock is now over 20 percent away from it record high of ₹8,190, hit in October last year. Meanwhile, it has rise around 7 percent from its 52-week low of ₹6,190.00, hit in March this year.

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It has lost over 11 percent in the last 1 year and 10 percent in 2024 YTD. Just in July, the stock has shed over 7 percent.

Q1 Results

Bajaj Finance reported a 14 percent increase in net profit for the June 2024 quarter, reaching ₹3,912 crore compared to ₹3,437 crore in the same quarter of 2023. Revenue for the NBFC stood at ₹16,098 crore in Q1, up from ₹12,497 crore in the June 2023 quarter.

Net interest income grew by 25 percent in Q1 FY25, rising to ₹8,365 crore from ₹6,717 crore in Q1 FY24. Total expenses increased to ₹10,839.48 crore in the last quarter, up from ₹7,951 crore in the corresponding quarter of the previous year.

Assets under management (AUMs) saw a 31 percent growth, reaching ₹3.54 lakh crore in Q1 compared to ₹2.70 lakh crore in Q1 FY24. New loans booked increased by 10 percent, with 1.09 crore loans booked against 0.94 crore in the June 2023 quarter.

Gross NPAs and Net NPAs as of June 30, 2024, stood at 0.86 percent and 0.38 percent, respectively, compared to 0.87 percent and 0.31 percent as of June 30, 2023.

Brokerage views

Bajaj Finance reported a solid increase in net profit and revenue, but concerns over rising credit costs and declining net interest margins have tempered enthusiasm. Various brokerages have updated their ratings and price targets, reflecting a cautious yet hopeful outlook for the company’s future performance.

Motilal Oswal has maintained a neutral stance on Bajaj Finance following its Q1 earnings, assigning a price target of ₹7,500, an 11 percent increase from the previous close. “We cut our FY26 PAT estimate by 3 percent to factor in higher steady-state normalized credit costs. We estimate a CAGR of 27 percent/24 percent in AUM/PAT over FY24-FY26 and expect Bajaj Finance to deliver RoA/RoE of 4.2 percent/22 percent in FY26. Despite a healthy PAT CAGR of 24 percent over FY24-FY26E and RoA/RoE of 4.2 percent/22 percent in FY26E, we see limited upside catalysts. Consequently, we maintain our Neutral rating on the stock with a price target of ₹7,500 (premised on 4.2x FY26E BVPS),” stated the brokerage.

Global brokerage firm Jefferies retained its ‘Buy’ rating on Bajaj Finance but lowered its price target to ₹7,780 from ₹9,260. Jefferies highlighted that profit missed Street expectations due to a sharper rise in credit costs, climbing to 2.3 percent of average AUM (adjusted for the utilisation of reserves), which was a significant drawback. Despite healthy AUM growth at 31 percent year-on-year, asset quality weakened. The decline in net interest margins (NIMs) could lead to slower growth in the future. Consequently, the brokerage has trimmed earnings by 3-5 percent, emphasising that improved core earnings are crucial for maintaining a premium valuation (24 times FY25 PE).

Citi also cut its price target on Bajaj Finance to ₹8,275 but retained its ‘Buy’ rating on the stock. The firm pointed out that Bajaj Finance’s core earnings missed expectations as NIMs fell 23 basis points compared to the 30-40 bps guided for the first half. Additionally, the credit cost was elevated at 2 percent, compared to the 1.75-1.85 percent guidance.

Morgan Stanley has retained its ‘Overweight’ rating on the stock and kept its price target unchanged at ₹9,000. The brokerage anticipates the company’s performance to improve in the second half of FY25 as earnings growth inflects and asset quality improves. However, the brokerage expects the stock performance to remain muted in the near term, with improvement anticipated in the second half of FY25.

The Q1 FY25 results for Bajaj Finance have led to weak responses from brokerage firms, with adjustments in price targets and ratings reflecting both the strengths and concerns highlighted in the financials. While robust growth in AUM and PAT provides a positive outlook, rising credit costs and declining NIMs pose challenges. The overall sentiment remains cautiously optimistic, with expectations for performance improvements in the latter part of FY25.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.