Selling at the top

India’s largest non-banking financial company, Bajaj Finance, is on course to a muted recovery. In Q3FY21, the consumer lender posted revenue of Rs.66.58 billion, down 5% compared to Rs.70.24 billion last year. Net profit came in at Rs.11.46 billion and recorded a fall of 29% from Rs.16.14 billion, a year ago.

The loan losses for the quarter were also up 63% year-on-year and stood at Rs.13.52 billion. It saw an uptick because the company decided to write-off principal and interest amount of Rs.19.70 billion and Rs.3.65 billion, respectively on account of Covid stress.

But the stock has since gone on to hit a 52-week high of Rs.5,822. It has gained nearly 226% since the May low of Rs.1,783. Cashing in, MD Rajeev Jain offloaded stock worth Rs.1.3 billion. Following the sale, his holding reduced from 0.05% to 0.01% but after grant of new stock options, is now back at 0.05%. Along with Jain, other prominent sellers include Bhaskar Kumar – head of analytics, Vivek Likhite – SVP, corporate audit and Atul Jain – enterprise risk officer with Rs.130 million, Rs.21 million and Rs.11.2 million, respectively.

Post the Q3FY21 result, Jain announced the company’s foray into payments and said “Bajaj Pay” will be launched by Q4FY21. “We will launch “Bajaj Pay” mainly for our merchants. We move 7%- 8% of their commerce. We think we have an opportunity to double that volume in the medium-term,” Jain said during the conference call.

Jain's optimism aside, analysts at Axis Securities expect that technological change will bring down the headcount and have maintained a ‘sell’ rating on the stock with a price target of Rs.4,350. “While the business transformation process augurs well, there is uncertainty over impact from RBI’s NBFC norms on the company’s operating and return ratios. Management’s guidance towards a normalized FY22 looks largely baked in current valuation,” states their report.

Analysts at ICICI Direct, though, believe the opportunity to apply for banking licence will see renewed interest among investors. They have maintained a ‘buy’ rating with a target price of Rs.5,900. “The management commentary to consider the banking licence if it is favourable bodes well for the long-term view of the stock,” mentions their report.

Meanwhile, mutual funds have reduced their stake from 7.1% to 6.25% between September and December 2020. SBI MF and Axis MF have reduced their holding from 1.89% and 2.57% to 1.58% and 2.48%, respectively. FIIs have increased their holding from 21.31% to 23.89% with the Government of Singapore increasing its holding from 4.26% to 4.38%.