Bajaj Finance rating: Sell | Macro headwinds to impact growth

Bajaj Finance reported sturdy headline performance in Q1FY23, supported by a buoyant enterprise atmosphere and ongoing advantage of lower interest rates. Whilst the momentum continues for the up coming handful of months, lower discretionary income and soaring rates will probable stumble Bajaj’s fast growth trajectory. Publish the current rally, we downgrade the inventory to Offer score with Good Value of Rs 5,400.

Difficulties can not be overlooked: Bajaj Finance reported superior NIM, benefiting from ongoing decline in funding expense and decrease-than-predicted credit rating fees. We, even so, imagine that rigorous level of competition, specially in the buyer B2B and B2C segments, will set force on Bajaj’s medium-term profitability. Personal banks are concentrating on BNPL (shopper resilient) financing. Banking institutions shifting focus to personalized loans will maintain stress on yields in the B2C ebook as well. Although benchmark prices have elevated drastically, Bajaj Finance carries on to benefit from drop in charge of cash (6.64% from 6.71% in Q4FY22), which will probable start off to inch up from H2FY23E.

Bajaj’s inner grading indicates asset excellent performance of most segments, apart from two-wheeler financing, is strong. We, nevertheless, consider that mounting inflation and resultant decrease discretionary income pose challenges. The company claimed 6% q-o-q bank loan growth in Q1FY23, as compared to 8-9% q-o-q documented in Q1 in pre-Covid yrs.

Downgrade to Market write-up the rally: We are revising up our core estimates by 2-4% reflecting superior NIM trajectory all round earnings are up 1-8% reflecting lower credit score charges. We go on to model 26% core financial loan progress, moderating to 22% in FY2024-25E. Though current expansion and return matrices stay robust, competitive and macro headlines could not assist Bajaj’s wealthy valuations. The recent stock rally presents an prospect to reduce exposure. We downgrade the inventory to Offer FV Rs 5,400 (4.9X e book rolled in excess of to Rs 5,100).