Buy Bajaj Finance; target of Rs 9600: Motilal Oswal

Motilal Oswal's research report on Bajaj Finance

Bajaj Finance (BAF)’s 2QFY24 reported PAT grew 28% YoY to ~INR35.5b (in line). NII rose 30% YoY to ~INR72b. Other operating income grew 13% YoY, and net total income (NTI) jumped 26% YoY to ~INR88.4b in 2QFY24. BAF’s 2QFY24 NIM (calc.) contracted ~35bp QoQ to ~12.6% even as the reported NIM declined ~15bp QoQ. We model NIM compression of ~20bp in FY24 due to the expected rise in cost of borrowings and challenges in passing on any further interest rate hikes. We have incorporated the announced equity capital raise of ~INR100b in our estimates and model an AUM/PAT CAGR of ~29%/28% over FY23- FY26. We expect BAF to deliver an RoA/RoE of 4.8%/23% in FY26. Key monitorables for FY24 are: a) the evolution of its payments landscape and adoption of its payment offerings, and b) the degree to which the NIM compression can be offset with operating leverage, resulting in a contraction in cost ratios.

Outlook

Reiterate BUY with a TP of INR9,600 (premised on 5.7x Sep’25E BVPS).