The last one year has not been very impressive for the non-banking lenders on the back of high credit costs even as their asset quality remains robust. The Nifty Financial Services (Nifty Fin) has underperformed the benchmark Nifty in the last one year as well as in 2024 YTD.
The sectoral index has risen 18 percent in the last one year and 1 percent this year so far as against a 29 percent and 4.7 percent rise in the benchmark Nifty, respectively.
But, in the last 2 months, the NBFC stocks have witnessed a recovery with the Nifty Fin Services jumping 3.5 percent so far in April and 2.8 percent in March. In comparison, the Nifty rose 1.9 percent in April so far and 1.5 percent in March.
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Following the overall bullish momentum of the Indian market, the Nifty Fin index also hit a new high of 21,758.35 on April 9, 2024.
However, the biggest NBFC stock in the index Bajaj Finance has not been following the same path.
BAF has been flat in April so far, down 0.2 percent. Overall in 2024 YTD, the stock has shed 1.4 percent, giving negative returns in 3 of the 4 months. Apart from April, the scrip was down 5.4 percent in February and 6.3 percent in January. However, it surged 11.5 percent in March.
Meanwhile, in the last 1 year, the stock has gained over 23 percent, outperforming Nifty Fin.
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Currently trading at ₹7,229.10, the scrip is almost 12 percent away from its record high of ₹8,192.00, hit on October 6, 2023. But, it has recovered 25 percent from its 52-week low of ₹5,780, hit on April 12, 2023.
Meanwhile, in the long term, shares of Bajaj Finance have delivered over 4000 percent return to their shareholders in the last 10 years.
December quarter earnings
In the December quarter,Bajaj Finance posted a 22.40 percent year-on-year (YoY) rise in its consolidated net profit at ₹3,638.95 crore as against ₹2,973 crore in the same period last fiscal. Meanwhile, its revenue from operations during the quarter under review grew 31.28 percent to ₹14,161.09 crore versus ₹10,787.25 crore in the corresponding period last year.
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The NBFC's assets under management (AUM) jumped 35 percent to ₹3,10,968 crore as of December 31, 2023 from ₹2,30,842 crore in Q3FY23. Meanwhile, its net interest income rose 29 percent in the quarter under review to ₹7,655 crore as compared to ₹5,922 crore in the same period last year.
The lender's asset quality also improved in Q3FY24 with its gross NPA (non-performing asset) and net NPA at 0.95 percent and 0.37 percent, respectively. Its GNPA and NNPA were 1.14 percent and 0.41 percent in the corresponding period last fiscal.
Despite such a stellar long-term return, the stock has been underperforming in recent times. Will its performance improve? Here's what technical and fundamental experts say:
Technical view
Om Mehra, Technical Analyst, SAMCO Securities
After a significant rise in the recent past, the stock price of Bajaj Finance currently remains in a consolidation phase. When we look at the weekly chart, the primary trend continues to be bullish. In a daily time frame, the Relative Strength Index (RSI) consistently shows values above 65, signifying sustained strength.
The stock is currently trading above its 20-day and 50-day moving averages. The daily chart shows that the stock is on the verge of a potential breakout. It is noteworthy that the NBFC sector to which Bajaj Finance belongs has also shown bullish momentum, which could help the stock perform even better. Bajaj Finance has remained resilient, holding strong above the key level of ₹7,100. Investors may consider accumulating the stock in stages for a long-term investment horizon.
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Rohan Shah - Technical Analyst, Religare Broking Ltd
Bajaj Finance has rebounded strongly after completing the bullish harmonic pattern around 6200 levels. The upmove in price is well supported by volumes, which highlights buying interest at elevated levels. However, post the recent surge, the stock is seen digesting its gains and consolidating in a narrow range with relatively lower volumes, highlighting a lack of selling pressure. Thus, we believe a breakout above 7400 would propel the next leg of the upmove towards 7700 and 7900 levels. On the flip side, support is seen at 7130, followed by 7050 levels.
Gaurav Bissa, VP, InCred Equities
Bajaj Finance has witnessed a strong bounce from its horizontal channel support. however, the structure remains range-bound with the possibility of incremental volatility going ahead. in the absence of triggers, it is advised to avoid Bajaj Finance in the short term.
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Rajesh Palviya, SVP - Technical and Derivatives Research, Axis Securities
Since May 2021, the stock has broadly consolidated within 8100-5500 levels, indicating a major long-term sideways trend. However, on the short-term chart, the stock has witnessed a sharp bounce back from the lower-end support zone of 6180-6200 levels. This indicates a bullish short-term trend. The positive crossover of 20 and 50-day SMA reconfirms short-term trend reversal. Currently, the stock is hovering around its 200-day SMA (7252). Hence, any sustainable up move above the same may cause further momentum towards 7800-8000 levels. On the other hand, the 100-day SMA support at 7037 levels provides a good demand zone. The weekly and monthly strength indicator RSI continues to remain positive, indicating sustained and rising strength.
The short to medium-term outlook stands bullish; hence, traders and investors are advised to hold the stock with the expected upside of 7800-8000-8100 levels in upcoming months.
Fundamental view
ICICI Securities: The brokerage has initiated its coverage on the stock with a 'BUY' rating and a target price of ₹8,500, implying an upside of 17.5 percent.
ICICI observed that Bajaj Finance stands out among Indian NBFCs by emphasising customer 'ownership' rather than just 'lending'. The company's distinctive business model focuses on offering financial solutions to India's growing aspirational middle class. This approach is expected to drive Bajaj's assets under management (AUM) and return on equity (RoE) to exceed 25 percent growth in the near future.
The company sports the lowest cost of delivery among NBFCs, which is backed by a strong cross-sell/up-sell engine and robust digital infrastructure – arm in arm, these form the bedrock of Bajaj’s leadership now and going ahead too in the NBFC space, it added.
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The brokerage believes that the adaptability to the ever-changing market needs has been one of the strongest points of Bajaj. It also observed that despite attempts by several players to establish themselves in the high-yielding unsecured lending sector, most have struggled to expand their operations. However, Bajaj Finance has managed to succeed where others have faltered.
Anand Rathi: The brokerage reiterated a ‘Buy’ rating on Bajaj Finance with a target price of ₹8,630 per share, implying an over 19 percent upside.
Bajaj Finance's share price has seen a decent correction from its record high and is at an attractive entry point, said brokerage firm Anand Rathi, adding that the company’s premium valuation has decreased over the last two years. It noted that at the current market price, the stock trades at 3.5x FY26e Book Value and 18x FY26 PE, with regulatory overhang priced in at this point. The stock has traded at higher valuations in the past.
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"Bajaj Finance is on track to achieve its medium-term targets and gain market share, with high growth, deepening product penetration and unmatched execution skills. Despite competition from other large corporate-backed NBFCs, we consider that the company is one of the fastest-growing proxies for the Indian premiumisation theme," it stated.
It further highlighted the company’s loan-growth premium to peers is likely to be high. This, and deep tech and product knowledge, makes the brokerage believe that it is the best franchisee to play the Indian premiumisation theme. It estimates around 26.6 percent loan CAGR over FY24-26 and 4.5 percent RoA.
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.
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