Bajaj Finance's Share Price Tanks Over 5% As Weak Outlook Dampens Investor Sentiment

Shares of Bajaj Finance were falling steeply on Friday after the non-banking finance company put out lacklustre guidance with inline earnings for the fourth quarter.

What Happened: Bajaj Finance reported a consolidated net profit of ₹3,825 crore in Q4, a 21% increase year on year, mostly in line with street estimates. Net interest income was at ₹8,013 crore, while the net interest margin (NIM) was compressed by 21 basis points from the previous quarter.

The company’s gross non-performing assets (NPA) and net NPA stood at 0.85% and 0.37%, respectively, as of March 31.

During its earnings conference call, Bajaj Finance’s management said the company may see a slight decline in return on equity (ROE) in FY25. This dip is attributed to the additional capital of ₹9,097 crore raised during Q3. Bajaj Finance has a long-term guidance for ROE of 21%-23%, although for the past three years, the ROE has remained at 19%.

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In terms of other metrics, the company expects the return on assets and both gross non-performing assets and net non-performing assets to stay stable.

The management has also forecast a reduction of 30-40 basis points in net interest margins (NIM) over the next two-three quarters. Despite this, the company expressed cautious optimism about FY25, anticipating profit growth to be more pronounced in the latter half of the fiscal year due to NIM moderation in the first half.

These challenges included higher loan losses in personal loans to rural customers and the ongoing impact of Reserve Bank of India’s (RBI) restrictions on its business.

Last November, RBI directed the lender to cease providing fresh loans under its lending products eCOM and Insta EMI Card due to non-compliance with digital lending guidelines. Bajaj Finance has since made necessary changes in response to these restrictions and formally requested RBI for a review and removal of these restrictions.

Regarding rural business-to-consumer (B2C) segment, the company has decided to slow down its growth strategy. The assets under management (AUM) growth in rural B2C, excluding gold loans, decreased from 25% in March 2023 to 6% in March 2024. Despite stable risk metrics across all businesses, rural B2C witnessed elevated loan losses.

In the March quarter, total loan losses and provisions amounted to ₹1,310 crore, marking a 53% increase from the same period last year. For the current fiscal year (FY25), Bajaj aims to grow its AUM by 26%-28%, supported by newly launched secured businesses such as loan against property, new car financing and tractor finance.

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