Bajaj Finance Q1 FY25 Financial Results Analysis

Solid Growth Amid Market Concerns

Bajaj Finance, a leading non-banking financial company (NBFC), recently unveiled its financial results for the first quarter of FY25, showing a robust 13.8% year-on-year (YoY) rise in net profit. However, the market has its reservations despite the positive numbers. This post provides a detailed analysis to help investors, financial analysts, and business owners understand the nuances behind these figures.

Key Financial Metrics

Bajaj Finance has posted impressive numbers this quarter, reflecting its resilience and growth potential in a competitive market.

Net Profit Increase

The company reported a net profit of ?3,912 crore, a 13.8% YoY increase. While this figure demonstrates solid growth, it slightly missed street estimates, signaling potential concerns about rising costs.

Net Interest Income (NII) Surge

Net Interest Income saw a remarkable 25% YoY growth, jumping from ?6,717 crore in Q1 FY24 to ?8,365 crore in Q1 FY25. This increase is a testament to the company's ability to generate higher income from its lending activities.

Pre-Provisioning Operating Profit

Pre-provisioning operating profit surged by 25% YoY, reaching ?6,947 crore, up from ?5,543 crore in the previous year. This metric indicates strong operating efficiency before accounting for loan losses and provisions.

Rising Loan Losses and Provisions

Loan losses and provisions rose to ?1,685 crore compared to ?995 crore in the previous year. This significant increase highlights the company's cautious stance amid uncertain economic conditions.

Total Net Income Growth

Total net income increased by 24% YoY, reaching ?10,418 crore. This metric reflects the overall revenue generated by the company after accounting for all expenses.

Operational Highlights

Bajaj Finance's operational performance has been equally noteworthy, with several key metrics showcasing its market strength and customer engagement.

New Loans Issued

The company issued 10.97 million new loans, a 10% increase from 9.94 million loans last year. This rise in loan issuance underscores the company's ability to attract new customers and expand its lending portfolio.

Expanding Customer Base

Bajaj Finance's customer base grew to 88.11 million by June 2024, reflecting a 21% YoY growth. In just Q1 FY25, the company added 4.47 million new customers, further solidifying its market presence.

Asset Quality

Maintaining asset quality is crucial for any financial institution, and Bajaj Finance has shown resilience in this regard.

Gross NPA Ratio

The Gross NPA ratio slightly improved to 0.86% from 0.87% in Q1 FY24. This marginal improvement indicates effective risk management practices.

Net NPA Ratio

Despite the overall positive trend, the Net NPA ratio increased to 0.38% from 0.31% in the previous year. This rise suggests some challenges in managing asset quality.

Provisioning Coverage Ratio

The provisioning coverage ratio stood at 56% on stage 3 assets, reflecting the company's cautious approach to provisioning for potential loan defaults.

Capital Adequacy Ratio

Bajaj Finance's capital adequacy ratio remains strong at 21.65%, with Tier-I capital at 20.73%. This robust capital position ensures the company's ability to absorb potential losses and sustain growth.

Assets Under Management (AUM)

The company's assets under management (AUM) have shown significant growth, reinforcing its market position.

AUM Growth

AUM increased by 31% YoY, reaching ?3.54 lakh crore from ?2.7 lakh crore in Q1 FY24. This substantial growth highlights the company's ability to expand its asset base and generate higher revenue.

Market Reaction

Despite the robust financial performance, the market reacted cautiously to Bajaj Finance's Q1 FY25 results.

Share Price Performance

Shares of Bajaj Finance dropped nearly 3% in intra-day trading on July 23, hitting an intra-day low of ?6,543.20. The stock is currently over 20% away from its record high of ?8,190, achieved in October last year.

Stock Performance Over Time

The stock has risen about 7% from its 52-week low of ?6,190 in March this year. However, it has lost over 11% in the last year and 10% in 2024 year-to-date. In July alone, the stock has shed over 7%, reflecting market concerns.

Detailed Financials

A closer look at Bajaj Finance's detailed financials provides additional insights into its performance.

Revenue and Profit

The company reported a net profit of ?3,912 crore, a 14% increase from ?3,437 crore in Q1 FY24. Revenue reached ?16,098 crore, up from ?12,497 crore in Q1 FY24, showcasing strong top-line growth.

Total Expenses

Total expenses increased to ?10,839.48 crore from ?7,951 crore in the previous year. This rise in expenses highlights the cost pressures faced by the company, impacting its overall profitability.

Brokerage Views

Brokerages have provided varied perspectives on Bajaj Finance's performance, reflecting both optimism and caution.

Motilal Oswal

Motilal Oswal has rated Bajaj Finance as "Neutral" with a price target of ?7,500, an 11% increase from the previous close. The brokerage adjusted its FY26 profit estimates down by 3% due to higher credit costs, highlighting limited upside catalysts despite healthy growth.

Jefferies

Jefferies has rated the stock as "Buy" but reduced the price target to ?7,780 from ?9,260. The brokerage noted that profit missed expectations due to higher credit costs, and while AUM growth was strong, asset quality weakened.

Citi

Citi has also rated Bajaj Finance as "Buy" but lowered the price target to ?8,275. The brokerage pointed out that core earnings missed expectations due to falling net interest margins (NIMs) and elevated credit costs.

Morgan Stanley

Morgan Stanley maintained an "Overweight" rating with an unchanged price target of ?9,000. The brokerage expects performance improvement in the second half of FY25, driven by asset quality enhancement.

Conclusion

Bajaj Finance's Q1 FY25 results reflect strong growth in net profit and revenue, driven by robust net interest income and asset management. However, rising credit costs and declining NIMs have tempered market enthusiasm, leading to a decline in stock prices post-results. Brokerages have adjusted their ratings and price targets, highlighting cautious optimism with expectations of better performance in the latter part of FY25.

For investors, financial analysts, and business owners, the company's strong growth metrics provide a positive outlook, but addressing the challenges posed by increased credit costs and shrinking NIMs will be crucial for sustained future performance. To stay updated on Bajaj Finance's performance and other financial insights, continue following our blog.

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Disclaimer

This article should not be interpreted as investment advice. For any investment decisions, consult a reputable financial advisor. The author and publisher are not responsible for any losses incurred by investors or traders based on the information provided.

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