Bajaj Finance underscores COVID pressure in Q1; brokerages see tough road ahead

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26 Aug, 2025 12:21

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Shares of Bajaj Finance jumped 7.84 percent to close at Rs 3,352.75 on BSE on July 7, a day after the company disclosed its June quarter performance.

The company said it may consider additional accelerated provisioning for COVID-19 in Q1FY21 as well to further strengthen its balance sheet.

The company said the new loans booked during Q1FY21 was 17 lakh as compared to 73 lakh in Q1FY20, down 76.7 percent year-on-year (YoY).

Assets under management (AUM) stood at approximately Rs 1.38 lakh crore as on June 30, 2020, compared with Rs 1.29 lakh crore as of 30 June 2019.

AUM under mortarium reduced from 27 percent as of 30 April 2020 to approximately 15.5 percent as of 30 June 2020, Bajaj Finance said.

"The company continues to remain well-capitalised with capital adequacy ratio (CRAR) of approximately 26.4 percent as of 30 June 2020. The consolidated liquidity surplus was approximately Rs 17,600 crore as of 30 June 2020. The Company's liquidity position remains very strong. Deposit book stood at approximately Rs 20,000 crore as of 30 June 2020 compared to Rs 15,084 crore as of 30 June 2019," Bajaj Finance said.

As per brokerage firm ICICI Securities, the company’s agility and excellence will be put to test amid COVID-19 dislocation.

The brokerage has kept Bajaj Finance unrated and raised the question if the company can navigate better-given granularity (more than 1 lakh points of sale across nearly 2,400 locations), de-risked portfolio, strong risk management (3 percent credit cost on 12-13 percent NIM profile), cost consciousness (3-4 percent opex, 33-35 percent cost to NII) and capital preservation (tier-1 at 21 percent, leverage 5 times).

The stock trades at nearly 35 times FY20 earnings and 5.7 times FY20 book, ICICI Securities said.

Brokerage firm Emkay Global has a 'hold' rating on the stock with a 12-month target price of Rs 2,150, citing the company has reported slowest AUM growth in the last 10 years.

"Slowing growth (in spite of lower repayments) is an indication of relatively faster run down of book (with shorter maturity) and a steep cut in disbursements amid COVID-19 lockdowns," Emkay said.

Emkay highlighted that growth in new loans and overall customer franchise have come off sharply. Considering the cautious management approach, the declining trend is expected to continue even during Q2FY21 as well.

"The AUM under moratorium (based on the count of customers) has declined from 27 percent as of April 30, 2020, to 15.5 percent as on May 30, 2020, which is a positive surprise. However, we also need to keep an eye on the overall trend in bounce rates (nearly 37 percent during Q4FY20) as well as the absolute quantum of moratorium pending, which would be a key aspect for the future provisioning requirement," Emkay said.

Motilal Oswal Financial Services has a 'neutral' rating on the stock with a target price of Rs 3,000 (4.2 times FY22E BVPS; implied 25 times PE FY22).

Motilal said the sharp reduction in moratorium is a big positive in disclosures. The brokerage believes better performance in asset quality would result in the big delta to earnings via lower credit cost/margin compression.

"While QoQ decline in AUM is in line with our expectation, a pickup in economic activities should lead to better AUM growth going forward. On the other hand, the company is likely to benefit from a lower cost of funds from bank loans as well as market borrowings. While we have baked in NIM compression of 90bp, there is room for a surprise," Motilal Oswal said.

"Bajaj Finance is also aggressively looking to cut the flab in the system and improve opex to assets (we bake in a 100bp YoY drop) to counter pressure on the top line. Overall, we have upgraded our earnings estimates by nearly 15 percent for FY21/FY22 to factor better AUM growth, a reduction in credit cost and slightly better margins," Motilal Oswal added.

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