Bajaj Finance reported its results for the third quarter of the current fiscal year on January 30th, 2023. The market reacted negatively to certain aspects of the results, with the company’s shares plunging around 5% following the announcement. This has led many investors to question whether Bajaj Finance now presents a buying opportunity at lower prices. Let’s take a deeper look at the Q3 performance and analyst views to understand the key issues and determine if investors should consider buying Bajaj Finance shares on current dips.
While Bajaj Finance‘s consolidated net profit for Q3 FY23 grew 22% year-on-year to Rs 3,639 crore, it was slightly below analyst estimates of around Rs 3,750 crore. The company’s profit growth was impacted by higher provisions made towards possible loan losses going forward. Bajaj Finance’s provisions for the quarter jumped 48% to Rs 1,900 crore from Rs 1,280 crore in the prior year quarter. This was done to shore up provisions as the overall credit environment remains uncertain.
Delinquencies and gross non-performing assets also rose during the quarter. The non-performing assets (NPAs) rose to 1.73% of total assets compared to 1.60% in the previous quarter and 1.46% a year earlier. The stage 3 provisioning coverage ratio declined to 49.1% from 50.4% in the previous quarter. This indicates the company has set aside lower provisions against likely loan losses.
Analysts at Macquarie have maintained a ‘Neutral’ stance on Bajaj Finance post the Q3 results. While the profit was in-line with estimates, higher credit costs offset the impact of lower margin decline. Macquarie expects credit costs to increase further as delinquencies normalize going forward in a rising interest rate environment.
However, brokerage firms Jefferies and PhillipCapital have retained their ‘Buy’ ratings on the stock. Jefferies believes the strong loan growth of 35% and better net interest margins aided the company’s net interest income growth of 29%. Despite the disappointment on asset quality, the brokerage is positive due to the company’s large size, steady growth outlook and strong balance sheet.
PhillipCapital is also of the view that Bajaj Finance remains well capitalized with sufficient liquidity reserves to navigate any short term challenges. It expects the company’s profitability to recover as credit costs normalize over the coming quarters.
Overall, while Bajaj Finance’s Q3 results saw some pressure due to higher provisions, most analysts remain confident in the company’s long term growth outlook given its leadership position in the NBFC space. Investors with a holding period of over 1-2 years can consider buying Bajaj Finance shares at current levels, which are around 10-15% lower from recent highs. However, near term volatility cannot be ruled out as macroeconomic conditions remain uncertain. Investors should evaluate their risk appetite and investment horizon before taking any decision.
While asset quality issues are a concern in the current environment, Bajaj Finance’s strong franchise, consistent financial performance track record and robust balance sheet provide comfort. If credit costs remain under control in the coming quarters, the stock’s valuation could look attractive at current levels for long term investors with suitable risk profiles. Short term traders may want to wait for greater clarity before taking fresh positions.
