Neutral Bajaj Finance; target of Rs 7500: Motilal Oswal

Motilal Oswal's research report on Bajaj Finance

BAF’s 1QFY25 reported PAT grew 14% YoY to ~INR39.1b (in line). NII grew 25% YOY to ~INR83.6b (in line). Non-interest income stood at ~INR20.5b (+21% QoQ and +22% YoY) due to the resumption of EMI card sourcing and one-off recovery from written-off pool of loans of INR450m. BAF’s 1QFY25 NIM contracted ~23bp QoQ to ~9.8%. Out of this, ~13bp was on account of rise in CoF and ~10bp due to change in AUM composition. AUM growth in 1Q was supported by mortgages, commercial (ex LAS), SME, and new product segments such as cars and LAP. Higher growth in the secured product segments will likely keep yields under pressure in the near term. The management guided that the change in the AUM mix is expected to stabilize by Oct’24, which will result in stable NIMs. We estimate NIM of 9.9%/10% in FY25/FY26.

Outlook

Despite a healthy PAT CAGR of ~24% over FY24-FY26E and RoA/RoE of 4.2%/22% in FY26E, we see limited upside catalysts. Consequently, we maintain our Neutral rating on the stock with a TP of INR7,500 (premised on 4.2x FY26E BVPS).