Bajaj Finance Q2 preview: Profit growth to take a sharp downturn on cautiousness

NEW DELHI: The bottomline of non banking finance company (NBFC) Bajaj Finance is likely to see a sharp drop in growth during the September quarter, when the company announces earnings on Wednesday, say analysts.

Analysts highlighted that Bajaj Finance’s asset under management (AUM) growth has come to a multi-year low of 1.3 per cent due to the risk-averse attitude of the company's management.

“Customer franchise has come in at 44.1 million in Q2 versus 42.95 million in Q1. Management has guided for another quarter of accelerated credit costs, while the company sits on an all-time high liquidity buffer of Rs 22,300 crore. We await commentary on demand recovery,” said analysts at Emkay Global.

They project net interest income at Rs 4,262.3 crore, up 6.58 per cent year-on-year (YoY) and net profits at Rs 984.8 crore, a sharp drop of 34.62 per cent from a year-ago period.

The company experienced a drop in profit growth in the previous quarter as well. It reported a 19 per cent YoY fall in consolidated net profit at Rs 962.32 crore. However, last year, the September quarter was fruitful for the lender as profit rose 63 per cent YoY to Rs 1,506 crore, beating estimates.

“We expect improvement in collection efficiencies, a drop in cheque-bounce rates and lower flexi-loan disbursements in the quarter. Asset quality could remain stable owing to the standstill in the asset classification. GNPL ratio stood at 1.41 per cent (Q1FY21), with a 65 per cent provision cover ratio,” said analysts at IIF Securities.

The impact of concerns over growth and poor performance can also be seen in its share market performance. The scrip is down nearly 23 per cent in the current year, against a barely 2 per cent fall in Sensex in the same period.

Prabhudas Lilladher blames increased caution of the company while lending for the perceived impact of net interest growth momentum.

“As caution on credit risks stays, provisioning run-rate is expected to remain elevated. Lending grows cautious as certain business segments on the unsecured side remain vulnerable. Margins to improve on a somber base but higher bounce rates on the unsecured side post moratorium lift would mean spike in NPAs for the quarter,” said the brokerage house in its report.

It added that as the company continues to maintain high order Covid-led provisioning, credit costs for the quarter are expected to remain elevated.

Prabhudas Lilladher projects net interest income at Rs 4,197.3 crore, up 5 per cent, and the bottomline at Rs 1,191.4 crore, down 20.9 per cent.

According to IIFL Securities, among the key things to watch for will be commentary on asset quality and credit costs and growth outlook.