Bajaj Finance shares fall 8% the day after lower AUM is reported.

On Thursday, Bajaj Finance shares fell over 8% to Rs 6,032.25 on the Bombay Stock Exchange (BSE) during intraday trading and closed the day at Rs 6,099.85, down over 7% from the previous close. According to analysts, the steep drop in the stock of the consumer finance company was due to weaker-than-expected growth in assets under management (AUM) in the December quarter, along with increasing competition from existing fintech firms and new entrants such as Jio Fin. Bajaj Finance’s AUM grew by 27% year-on-year and 6% quarter-on-quarter to reach Rs 2.30 trillion as of December 31, 2022.

Bajaj Finance Share Drops Over 7%

• Bajaj Finance’s stock fell over 7% to close at Rs 6,099.85 on Thursday, following weaker-than-expected growth in assets under management (AUM) during the December quarter.
• Competition from existing fintech players and new entrants, such as Jio Fin, also contributed to the decline.
• Bajaj Finance’s AUM grew 27% YoY to Rs 2.30 trillion as of December 31, 2022, but this 6% QoQ growth fell below expectations of 7.5% growth.
• Global brokerage CLSA has a “sell” rating on the stock with a target price of Rs 6,000.
• In Q3FY23, Bajaj Finance acquired 3.1 million new customers and the total customer franchise increased 19% YoY to 66 million.
• The stock has underperformed the market in the past three months, with a 20% drop compared to a 4.4% rise in the S&P BSE Sensex.

Analysts’ Perspective

• The growth differentials between Bajaj Finance and other NBFCs and banks have narrowed due to faster loan growth at these institutions, leading to a “valuation multiple de-rating” of the stock, according to Sharekhan’s Rahul Malani.
• Motilal Oswal Financial Services noted that while disbursements were strong across product segments in Q3FY23, they were lower than expectations.
• Sharekhan’s Malani believes Bajaj Finance offers strong earnings growth and a strong, long-lasting franchise, with a “sector-leading” return on assets of 4.7%-4.8% and a return on equity of 22%-23% in FY24/FY25.

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CLSA’s Analysis

• Global brokerage CLSA stated that Bajaj Finance’s 6% QoQ growth in AUM during a seasonally strong quarter fell below its expectation of 7.5% growth, potentially indicating market share erosion for the NBFC.
• CLSA has a “sell” rating on the stock with a target price of Rs 6,000.

Bajaj Finance’s Recent AUM Growth

• Bajaj Finance reported approximately 37% compound annual growth rate (CAGR) in AUM over the past decade.
• Since the Covid-19 pandemic, the company has been reporting 25-30% growth in AUM.
• However, the growth differential with other banks and NBFCs has narrowed due to faster loan growth acceleration at these institutions, leading to a “valuation multiple de-rating” of the stock, according to Sharekhan’s Rahul Malani.

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Q3FY23 AUM and Disbursements

• In Q3FY23, Bajaj Finance’s AUM grew 6% QoQ, or approximately Rs 12,500 crore.
• Motilal Oswal Financial Services noted that while disbursements were strong across product segments, they were lower than expectations.
• The brokerage, which has a “buy” rating on the stock, highlighted that the company’s new customer acquisition rate was healthy in Q3FY23.

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