Shares of non-bank finance lender Bajaj Finance plunged around 8 percent in early trade on April 26 after the company's Q4 earnings report showed a decline in net interest margin. The company's net interest margin eroded 21 basis points in the fourth quarter on a QoQ basis to around 10 percent.
At 11.42 am, shares of Bajaj Finance were trading at Rs 6,744 on the NSE, lower by over 7 percent.
Kotak Institutional View
Even though the lender's earnings look in line, brokerage firm Kotak Institutional Equities believes a normalization in business parameters (growth in the mid-20s, NIM compression due to rising rates and shifting business mix, reversion in credit costs) will put near-term pressure and drive EPS cuts for Bajaj Finance, even as overall performance remains healthy.
Kotak has an 'Add' recommendation for Bajaj Finance with a target price of Rs 7,800.
MOFSL View
Motilal Oswal Financial Services is also unimpressed with Bajaj Finance's performance in Q4FY24. MOFSL believes that the management’s guidance for FY25 is below its long-term guidance on multiple metrics such as AUM growth, credit cost, RoA, and RoE.
MOFSL is skeptical over Bajaj Finance's decision to foray into multiple new products like financing of cars, tractors, and CVs, and potentially lending to MFIs which it believes could make growth vulnerable to cyclicality, despite having a well-diversified product mix.
MOFSL also sees near-term headwinds for Bajaj Finance's AUM growth with the company cutting down business in rural B2C, and AUM growth in the B2B segment slowed down after the RBI ban on e-commerce and Insta EMI cards.
"Another 35 basis points compression is expected in Bajaj Finance's margins in FY25 due to the expected rise in the cost of borrowings, difficulty in passing on the interest rate hikes to customers, and change in product mix," MOFSL said.
Baking in all these factors, the brokerage downgraded the stock to a 'Neutral' call, with a price target of Rs 7,800.
Citi View
Citi too has slashed its price target for Bajaj Finance to Rs 8,675 but maintained a 'Buy' rating. Building on the company's guidance for 30-40 bps NIM moderation in H1FY25, Citi cut its earnings estimates for the lender by 7 percent each for FY25 and FY26.
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