Post by : Badri Ariffin

Bajaj Finance, a prominent non-banking finance institution in India, encountered a significant drop of nearly 7% in its share price during early trading on Tuesday, November 11. This decline occurred even after the company reported impressive quarterly performances. Investor apprehension stemmed from a cautious forecast and growing issues in the MSME loan sector, raising worries about short-term growth prospects.

Impressive Profit Surge

The financial company posted a remarkable 23% elevation in consolidated net profit, amounting to ₹4,948 crore for the quarter ending September 30. Furthermore, net interest income surged by 22%, hitting ₹10,785 crore as compared to ₹8,838 crore in the same timeframe last year.

Concerns Over Asset Quality

In contrast, the asset quality indicators revealed emerging real strains. Gross non-performing assets (GNPA) escalated to 1.24% from 1.06% a year ago, as net NPAs increased from 0.46% to 0.6%. The slowdown in the MSME and two-wheeler lending has led the firm to pursue a more cautious and balanced credit growth approach.

Revised Guidance and Outlook

The firm adjusted its credit growth forecast for the current fiscal year to 22-23%, trimming it from the previous expectation of 24-25%. Executive management suggested that net interest margins (NIMs) may remain stable, while fee income growth is anticipated to be between 13%-15%, with credit costs projected at 1.85%-1.95% for FY26.

Market Sentiment and Valuation

Brokerages responded with caution. JM Financial lowered its EPS projections by 2%-3% for FY26/27, establishing a new target price of ₹1,140, adjusting its rating from BUY to ADD. Motilal Oswal Financial Services highlighted that, although the PAT growth forecast remains strong at roughly 25% over the period of FY25-FY28 alongside sturdy return ratios, the stock's elevated valuation limits the near-term potential, maintaining a Neutral rating with a target of ₹1,160.

Recent price fluctuations illustrate the prevailing investor wariness as essential lending sectors exhibit slowdowns, prompting Bajaj Finance to take a more calculated approach towards future growth. The company’s performance reveals the multifaceted challenges NBFCs face in balancing growth and asset quality amidst a fiercely competitive credit environment.

#Finance #Share Market