Markets
Rising competition can put a spoke in Bajaj Finance’s wheel
Summary
The non-banking financial company’s new loans booked rose 20% year-on-year (y-o-y) during the quarter. With this, Bajaj Finance has clocked its highest ever new loans for a full year in FY23.Bajaj Finance Ltd’s pre-quarter update for the three months ended March (Q4FY23) has a slew of positive takeaways. The non-banking financial company’s new loans booked rose 20% year-on-year (y-o-y) during the quarter. With this, Bajaj Finance has clocked its highest ever new loans for a full year in FY23. Core assets under management (AUM), which excludes short-term IPO financing, surged 29% y-o-y to Rs2.47 trillion as of 31 March. IPO refers to initial public offering. Strong disbursements across segments is likely to have driven the rise in core AUM.
The customer franchise for Bajaj Finance saw a record increase in FY23. The company acquired 3.1 million new customers in Q4, taking the total customer base as of March-end to 69.1 million, representing 20% growth from the previous year. This indicates that efforts to drive digital initiatives and omnichannel strategy to sustain its market share are starting to pay off. “In a competitive landscape, it is difficult to acquire new customers, and Bajaj Finance has shown good growth. The key monitorable is whether the company can utilize the customer base to cross-sell its products," said Akshay Ashok, research analyst at Prabhudas Lilladher. To be sure, Bajaj Finance’s plans to diversify into segments such as microfinance, auto loans, and SME, bode well for long-term AUM growth. However, rising competition and the fight for deposits are seen as potential dampeners in the near term. “While the diversification into new segments can help with AUM, sustaining the same levels of growth could be challenging. It is a new territory for Bajaj Finance, and it could face competition, particularly from banks," said Shweta Daptardar, VP, institutional equity research, Elara Securities India.
With elevated competition and rising cost of funds, the net interest margin trajectory is crucial. Also, the company’s deposit growth moderated sequentially in Q4. As of March-end, its deposit book increased 45% y-o-y, but on a sequential basis, it grew only 4%. In Q3 and Q2, sequential growth was 9% and 16%, respectively.
The sequential slowdown in deposits indicates that the company might have to look for alternative sources of borrowing, said Dnyanada Vaidya, research analyst at Axis Securities. “With increased competition, management commentary on how they aim to maintain margins is crucial for the stock’s near-term movement,“ she added. While Bajaj Finance’s shares reacted positively to the business update on Wednesday, they have declined by about 12% so far in 2023.
