Friday’s intraday trading saw an 8% decline of Bajaj Finance shares. They underperformed the benchmark Sensex, which gained almost 24% during the same period, with gains of only approximately 20% for the past year (through April 25).
The day after the company’s Q4 results were disclosed, Friday, April 26, saw a nearly 8% decline in Bajaj Finance shares. Following a previous closing of ₹7,293.90, Bajaj Finance shares began at ₹7,008.60. However, they plummeted as high as 7.8% to ₹6,728 on the BSE. At ₹6,743.45 a share, Bajaj Finance shares had a 7.55 percent decrease in trading at about noon. At that point, the equity benchmark Sensex was down 0.26 percent, trading at 74,147.56.
Why did Bajaj Finance shares tank?
For Q4FY24, Bajaj Finance reported a growth in net interest income and a solid profit. Nevertheless, it seems that investors were alarmed by the lender’s Q4 net interest margin shrinkage.
Thursday, April 25, after market hours, Bajaj Finance announced a 21% YoY increase in consolidated net profit of ₹3,825 crore for Q4FY24.
In Q4 of FY24, its net interest income (NII) increased by 28% YoY to ₹8,013 crore from ₹6,254 crore in Q4 of FY23.
Nonetheless, compared to Q3, the lender’s net interest margin (NIM) decreased by 21 basis points (bps) in Q4.
Non-performing assets, or gross NPA, were 0.85% and 0.37 percent, respectively, as of March 31, 2024, compared to 0.94 and 0.34 percent, on the same date in 2023.
As of the close on April 25, Bajaj Finance’s share price has gained about 20 percent over the last year, underperforming the benchmark Sensex, which has gained about 24 percent in the same period.
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Motilal Oswal downgrades Bajaj Finance stock
Despite a strong PAT CAGR of almost 25% over FY24-FY26E and a respectable RoA (return on assets) and RoE (return on equity) of 4.3% and 22%, respectively, in FY26E, brokerage firm Motilal Oswal Financial Services downgraded Bajaj Finance stock to a “neutral” after the Q4 results, pegging a target price of ₹7,800.
“Management’s guidance for FY25 is below its long-term guidance on multiple metrics such as AUM growth, credit costs, RoA, and RoE,” Motilal Oswal stated.
“Up until now, the secular growth segments have been Bajaj Finance’s main product categories. Though it has a well-diversified product mix, its entry into several more recent items, including vehicles, tractors, CVs, and even MFI, could (in the future) render its growth subject to cyclicality, according to the brokerage firm.
But Kotak Institutional Equities, which has a target price of ₹7,800, has stuck with its ‘add’ call on the company.
The brokerage firm stated that Bajaj Finance’s Q4FY24 earnings were consistent with the company’s strong 34% loan growth at the end of the year, despite a low base and NIM compression.
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“The normalization in business matrices (growth in the mid-20s, NIM compression due to rising rates and shifting business mix, a reversion in credit costs albeit improving operating leverage) will put near-term pressure and drive earnings cuts, even as overall performance remains healthy,” stated Kotak.
