Despite a significant year-over-year growth in both profit after tax (PAT) and net interest income (NII) during the fourth quarter, shares of Bajaj Finance plummeted by nearly 8% in a single trading session.
This downward movement occurred on Friday, April 26, coinciding with the announcement of the company's quarterly results.
On this day, the shares of Bajaj Finance opened at ₹7,008.60, a decrease from the previous close of ₹7,293.90, and plunged to a low of ₹6,728 on the Bombay Stock Exchange—a steep decline of 7.8%.
By midday, the stock was trading at ₹6,743.45, marking a 7.55% drop, while the broader market index, the Sensex, was down by just 0.26%.
Over the past year, leading up to April 25, Bajaj Finance's stock had seen an approximate 20% increase, which, while substantial, still lagged behind the benchmark Sensex’s gain of about 24% during the same timeframe.
This underperformance is one aspect that investors might have considered. However, more immediate concerns arose from the company’s financial disclosures.
On Thursday, post-market hours, Bajaj Finance reported a robust 21% year-on-year rise in its consolidated net profit, which reached ₹3,825 crore for Q4FY24.
Similarly, its NII for the quarter saw an impressive increase of 28% year-on-year, totalling ₹8,013 crores. Despite these strong growth figures, investor sentiment was dampened by a contraction in the company’s net interest margin (NIM), which shrank by 21 basis points from the previous quarter.
Additionally, although the gross non-performing assets (NPA) improved slightly year-over-year from 0.94% to 0.85%, the net NPA slightly increased from 0.34% to 0.37%.
Further impacting the stock, Motilal Oswal Financial Services downgraded Bajaj Finance to 'neutral' following the Q4 results, setting a target price of ₹7,800.
The brokerage cited limited upside catalysts for the stock despite forecasting a healthy compound annual growth rate (CAGR) in PAT of nearly 25% from FY24 to FY26E, and maintaining a robust projected return on assets (ROA) and return on equity (RoE) of 4.3% and 22%, respectively, by FY26E.
Motilal Oswal also noted concerns regarding the company’s FY25 guidance, which fell below long-term expectations across multiple metrics including assets under management (AUM) growth, credit costs, RoA, and RoE.
They expressed apprehension about Bajaj Finance’s expansion into new product segments like automobiles, tractors, commercial vehicles, and potentially microfinance institutions (MFIs), which might expose the company to increased cyclicality despite a diversified product mix.
In contrast, Kotak Institutional Equities maintained an 'add' rating on Bajaj Finance, with the same target price of ₹7,800, indicating a belief in continued value.
They acknowledged that while the Q4FY24 earnings aligned with expectations, the fiscal year concluded with a strong 34% loan growth but was also marked by NIM compression and heightened credit costs from a lower base.
Kotak suggested that normalization in business metrics, such as mid-20s growth, NIM pressure from rising rates, and a shifting business mix, would likely cause near-term pressures and potential earnings revisions, albeit the company’s overall performance remained fundamentally strong.
Thus, the drop in Bajaj Finance’s share price can be attributed to a mix of investor reactions to immediate financial metrics and broader strategic concerns, tempered by varying analyst perspectives on the company’s future growth trajectory.
