Why Bajaj Finance Share Price is Rising

What happens when you release a spring after pressing it? The spring bounces back with full force.

Similarly, what happens when a fundamentally strong company's share price underperforms in an adverse market scenario? It bounces back as soon as the market turns in favour of the company. The same thing has happened with Bajaj Finance.

Between September 2021 and early April this year, Bajaj Finance shares largely underperformed and suffered a decline. In the first three months of 2023, its share price tumbled 14%.

The company was losing its 'Midas' touch due to new competitors emerging in the NBFC space and expensive valuations.

However, the situation slowly changed for the company. The headwinds took a rest and the company's share price bounced back.

In the last three months Bajaj Finance share price has rallied 28%.

Let us find out why the company's share price is rising.

In the last one week, Bajaj Finance share price rallied 12% mostly on the back of two reasons.

#1 Healthy Q1 update

Bajaj Finance shares touched a new 52-week high today as the company gave a healthy Q1 update yesterday.

The NBFC announced that its new loans booked during the first quarter of FY24 grew by 34%. The number of loans booked during the quarter grew to 9.9 million (m) as compared to 7.4 m in the corresponding quarter of the previous year.

Bajaj Finance recorded the highest-ever quarterly increase in its assets under management (AUM) which grew by 32% to approximately Rs 2,700.5 billion (bn) as of 30 June 2023.

Its customer franchise as of June 2023 stood at 73 m as compared to 60.3 m as of 30 June 2022. The company recorded the highest-ever quarterly increase in its customer franchise of 3.8 m in Q1FY24.

The NBFC's asset total maintenance mix remained stable in Q1FY24. Consolidated net liquidity surplus stood at approximately Rs 127 bn as of 30 June 2023. According to the company its liquidity position remains strong.

The deposit book, on the other hand, recorded a YoY growth of 46% and stood at approximately Rs 499 bn in Q1.

Moreover, new customer acquisition was healthy and volume growth in disbursements was a strong 34% YoY.

#2 Partnership with BYD

BYD, Chinese electric bike maker has gained investor interest ever since the oracle of Omaha, Warren Buffett invested in the company. Its big bet on the electric vehicle (EV) sector has made the company one of the top EV stocks out there.

Hence, naturally, when a company enters into partnership with BYD, the former will also receive a lot of investor traction. The same has happened for Bajaj Finance.

Last Wednesday, on 28 June 2023, BYD India, of BYD, announced the signing of a Memorandum of Understanding (MOU) with Bajaj Finance, the lending arm of Bajaj Finserv, one of India's leading and diversified financial services group.

The strategic partnership aims to provide comprehensive vehicle financing solutions to BYD dealers and customers across India, fostering the widespread adoption of EVs in the country.

With BYD's innovative range of EV products, this collaboration is poised to create a significant impact in the Indian EV market.

Even before last week, Bajaj Finance share price was rising but for different reasons.

Strong financial performance

For financial year 2023, Bajaj Finance reported total net interest income (NII) of Rs 208.6 bn up 29% on a YoY basis on the back of new product launches and increased effort on marketing.

In the last 120 days of the year under review, the company focused actively on capacity expansion more so in sales and finance division of the company. It significantly ramped up its staffing both at the stores and in terms of people who manage them. This yielded significant results.

The company's net profit jumped 62% on a YoY basis to Rs 102.9 bn. The rise in net profit was driven by growing AUM and increasing loan disbursements.

Bajaj Finance FY23 Performance

Particulars	FY23	FY22
Net Interest Income (Rs in bn)	208.6	161.6
Profit after tax (Rs in bn)	102.9	63.5
EPS (Rs)	170.4	105.4

Source: Company, Equitymaster

The company added 11.6 m new customers to the franchise in the financial year 2023. It was the highest-ever customer addition made by the company during a year.

Rapid digital transformation

The company continues to digitally transform its business, making it more customer friendly.

The company's platform has gone fully live on app and web platforms with 35.5 m net users on App platform. It went live in a staggered release manner.

It went live on Android with its web application in April 2023. By 15 May 2023, all of its users were able to access the android application.

In its Q4FY23 update, the company said it added 61 features to its web platform which went live on 29 April 2023.

Going forward, all features that go live on app will also go live on web on the same day that it goes in app. That was really the original objective as the company outlined in December 2021, when it talked about App=Web strategy.

The company started to accelerate QR deployment from December 2022 onwards. In Q3 alone, it deployed 413,000 merchant QR.

The company expects to deploy 2.1 m to 2.5 m Bajaj Pay merchant QRs in FY24.

Significant addition to leadership team

The change of management often brings new growth opportunities for the company.

In March 2023, Bajaj Finance appointed two additional executive directors who brought in years of experience and expertise.

Both Anup Saha and Rakesh Bhatt worked with the company for a long time, before being appointed as the executive directors.

Before joining Bajaj Finance in 2017, Saha worked as their senior general manager and group product head for ICICI Bank and focused on retail home loan, vehicle loans, developer funding, and retail and rural collections for 14 years.

Bhatt joined Bajaj Finance in 2009, and was the CEO at Bajaj Finance until 2018, heading critical functions, including technology, analytics, credit operations, customer experience and quality. He was the CEO of Bajaj Finserv Direct for 4 years and spearheaded the launch of a diversified digital marketplace business in financial services and e-commerce.

Along with that the company also appointed investor and senior advisor Arindam Bhattacharya as an independent director of the firm.

How Bajaj Finance share price has performed recently

In the past one month, Bajaj Finance share price is up by 11.7%. On a YTD basis, it has gained around 20%.

In the past one year, Bajaj Finance has rallied 39%.

Bajaj Finance shares touched a 52-week high of Rs 7,917 on 04 July 2023 and a 52-week low of Rs 5,487.

Conclusion

Bajaj Finance is growing well. As one of the oldest and largest Indian NBFC, the company enjoys a large market share.

In January 2023, Yazad Pavri mentioned law of large numbers in his article on Bajaj Finance. He wrote,

• "...When a company gets too big, each percentage of incremental revenue suddenly represents a fundamentally larger number. Hence, growth rate is naturally expected to moderate as is the case with Bajaj Finance".

Hence, as the company grows bigger, the market will see that its smaller peers grow at a faster rate, which may harm investor sentiment.

The company is successfully converting one after another retail segments into their fold. Each and every segment, with a minimum portfolio of Rs 5 bn for the book size is being targeted and they are converting them into the product. This might work out well for the company.

The NBFC stands amid ample tailwinds due to overall positivity in lending sector.

However, the company is also threatened by moderate market demand in mortgage sector if interest rates continue to rise. Rising interest rate reduces the affordability of houses which may impact the company's product demand.

About Bajaj Finance

Bajaj Finance is a deposit-taking non-banking finance company (NBFC) with a diversified loan portfolio and a pan-India presence.

While the company was originally set up to provide finance for the purchase of two-wheelers and three-wheelers manufactured by Bajaj Auto, it diversified into other segments over the years.

Currently, it operates across seven broad categories - consumer lending, mortgages, commercial lending, rural lending, SME lending, deposits, and partnerships & services.

Under partnerships & services, the company offers products like health insurance, extended warranty, comprehensive asset care, co-branded credit cards and wallets.

To know more about the company, check out Bajaj Finance company fact sheet and Bajaj Finance quarterly results.

For a sector overview, read our finance sector report.

You can also compare Bajaj Finance with its peers.

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To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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