InvestorQ : How is the Bajaj Finance stock still touching new highs at a time when all NBFCs, banks and even consumer companies are struggling?
Priyanka N made post

How is the Bajaj Finance stock still touching new highs at a time when all NBFCs, banks and even consumer companies are struggling?

Answer
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NISHA Nayak answered.
8 months ago


It may not be entirely wrong to say that Bajaj Finance has almost defied gravity for the last few quarters despite the NBFCs and the consumption story coming to a grinding halt. One answer to this question could be that Bajaj Finance has gone beyond just asset quality management. They have also brought in a high degree of transparency into their operations.

Consider these instances which underline the transparency that has helped BFL.

· Bajaj Finance had warned well in advance about the consequences of a consumption slowdown on its balance sheet. It had also been one of the first lenders to clearly inform the market about the potential hit from its exposure to Karvy. In the latest quarter, BFL also took a hit of the full Rs.85 crore on account of the Karvy fraud.

· This is induced investors to focus on the 45% increase in standalone net profit that Bajaj Finance reported for the December quarter, rather than other disclosures made by the company. While there were pain points, these were known pain points and hence there was no element of surprise.

· Bajaj Finance reported 13% growth in new loan additions, lower than in preceding quarters but the advance warning positions the financer as a conservative player rather than as an unnecessarily aggressive player. Clearly consumers are not buying at the same speed they used to, even when equated monthly instalments (EMI) proposition is dangled for them.

· BFL has also hinted that the entry of big banks like HDFC Bank with distribution heft into the small ticket loan segment has increased competition and compressed margins.

· The big positive has been that Bajaj Finance has still managed to keep asset quality pressures under check, despite signs of stress. Its three major business lines of vehicle loans, discretionary consumer loans and rural funding have all come under pressure. But these were intimated to the customers well in advance and so there was not negative surprise.

In a nutshell, the market believes that Bajaj Finance weathered the consumption slowdown much better than competition, despite slowdown in loan growth. Multiples may be steep but that is unlikely to deter. It can still be a market outperformer in the medium term.