Bajaj Finance's Q2 Profit Growth Overshadowed by Market Concerns

Post by : Bianca Suleiman

Bajaj Finance, a prominent player in India's non-banking financial sector, experienced a significant drop of nearly 7% in its share price during early trading on Tuesday, November 11. This decline came despite reporting strong quarterly performance, as investors expressed concern over the company's cautious outlook and the growing challenges in its MSME loan sector.

Notable Profit Increase

The company recorded a substantial 23% rise in consolidated net profit, amounting to ₹4,948 crore for the quarter ending on September 30. In addition, net interest income grew by 22%, reaching ₹10,785 crore compared to ₹8,838 crore in the same quarter of the previous year.

Asset Quality Under Pressure

Despite the profit surge, Bajaj Finance's asset quality has shown signs of deterioration. The gross non-performing assets (GNPA) ratio increased to 1.24%, up from 1.06% a year prior, with net NPAs rising from 0.46% to 0.6%. The reduction in MSME and two-wheeler lending has prompted the company to pursue a more prudent approach towards credit expansion.

Adjusted Growth Projections

Management has revised the credit growth forecast for the ongoing fiscal year to a range of 22-23%, down from the earlier projection of 24-25%. They have indicated that net interest margins (NIMs) are expected to stabilize, with forecasts for fee income growth at 13%-15% and credit costs between 1.85%-1.95% for FY26.

Market Reactions and Investor Sentiment

Reactions from brokerages have been cautious. JM Financial adjusted its EPS forecast downward by 2%-3% for FY26/27, setting a new target price of ₹1,140, changing its rating from BUY to ADD. Meanwhile, Motilal Oswal Financial Services highlighted that although there is an expected PAT growth of about 25% from FY25 to FY28 along with robust return ratios, the stock's high valuation limits potential short-term gains, maintaining a Neutral rating with a target price of ₹1,160.

The recent fluctuations in share prices reflect a cautious investor attitude, stemming from a slowdown in core lending segments while the company adopts a measured approach to future growth. Bajaj Finance’s situation highlights the ongoing challenges faced by NBFCs in maintaining a balance between growth and asset quality within a competitive lending environment.