Bajaj Finance Q1FY23 result review- Back with a bang!

Buzzing:

Bajaj Finance reported Q1FY22 earnings with beat on Net interest income (NII), improved asset quality and strong earnings momentum. Managements confident commentary on guidance wherein AUM is seen doubling by FY25E and Return on assets (RoA) surging to 4.5-4.7% led stock to surge 10% post results.        

Context:

BAF reported stellar NII growth of 48%YoY to |6635 crore, higher than estimates. Overall AUM growth of 28% YoY and sequential sharp GNPA improvement added to earnings growth. PAT surged 159% YoY and 7% QoQ to Rs 2596 crore in Q1FY23. AUM growth also gained traction as Core AUM was up 31% YoY at ₹ 2,04,018 crore. It was primarily driven 10% QoQ growth in urban and rural B2B Sales finance. Mortgage also witnessed 28% growth YoY to Rs 65665 crore and 6.4% QoQ. It offers both EMI cards and Credit cards, payments, wallets and all major retail financial products under its new digital avatar.

Our perspective:

BAF continues to invest in teams and technology for business transformation. With the deep investments being committed to Omni channel strategy (geo-expansion, app platform, web platform), the Company expects Opex to NII to remain elevated, however core NII growth to offset the same. Ambitious targets on AUM growth (Rs 3.8 – 4 lakh crore by FY25) to boost profitability. BAF has 6.03 crore customers currently and plans to add 0.9-1 crore customers by year end. It has 8.9 million customers on its wallet and targets 18-19mn while in terms of  app downloads robust surge seen with 11.3 million downloads in this quarter. Its customer acquisition, new loan growth trajectory remain strong and momentum is expected to become stronger with its new digital eco system. Bajaj Finance can evolve as a twin play on e-commerce and conventional lending with the potential to capture the best of both worlds. Management is expected to deliver Return on Equity (RoE) at >18-19% and RoA at ~4.5% which makes the Bajaj Finance stock an attractive opportunity to play the fintech growth cycle. We maintain our positive stance on the stock.