Shares of Bajaj Finance jumped 3.85 per cent on Wednesday to close at ₹2,042.95 on the BSE, after it reported better-than-expected quarterly results on Tuesday. Intra-day, the stock hit a high of ₹2,061.

However, most analysts remain cautious and say going forward, its performance is directly linked to the lifting of the nationwide lockdown. However, they are optimistic that the company will weather the storm once the Covid-19-induced lockdown is lifted, as the company is better placed to handle the current situation.

Bajaj Finance posted a 19.4-per cent decline in consolidated net profit at ₹948.1 crore in the fourth quarter of FY20 compared with ₹1,176.06 crore a year ago. “Adjusted for contingency provision of ₹900 crore for Covid-19, profit for the quarter was up by 38 per cent at ₹1,622 crore,” the NBFC firm said. Its net interest income grew 38 per cent to ₹4,684 crore (₹3,385 crore).

The longer-than-expected lockdown will likely put pressure on Bajaj Finance’s ability to manage recoveries translating to further downside risk to near-term estimates, said Kotak Institutional Equities.

“While growth and credit cost remain challenging to forecast, Bajaj is confident about stepping up its recovery teams. We remain assertive on Bajaj’s ability to spot new business opportunities, manage expenses and mobilise fee income to support its pre-provision operating profit (PPOP) and outperform peers as and when the cycle picks up,” it added. Kotak Institutional Equities retained its ‘buy’ with a target price of ₹2,600 (down from ₹2,700).

Highest ROE possibility

Morgan Stanley said its provisions will stay high in FY21 because of Covid-19. “We expect Bajaj Finance to earn the highest ROE in our coverage in FY21, driven by pricing power, cost control, capital, coverage, and funding access, plus a large and granular customer base,” the foreign brokerage firm, which retained its ‘overweight’ stance on the stock with a price target of ₹2,740, said.

According to Motilal Oswal Financial Services, the company has a granular and high-churn retail/SME portfolio. About 37 per cent of loans mature within a year. The business model relies significantly on the addition of new customers and good macros for cross-selling to existing customers. Lockdown poses a challenge not only in terms of growth but also asset quality. “We expect the near-term focus to be on collections and managing liquidity and opex,” it said while keeping a ‘neutral’ rating on Bajaj Finance with a price target of ₹2,210.

Emkay Global, which last month downgraded the stock to ‘hold’ from ‘buy’ over a shift in management’s focus toward recoveries and cost control instead of managing growth momentum, said clarity over growth and NPAs will only come after the lockdown and completion of the moratorium. “We have cut our earnings by nearly 7.3 per cent/2.7 per cent for FY21/22.” Though it retained the ‘hold’ rating, the brokerage revised the target price downwards to ₹2,150 (₹2,331 previously).

YES Securities which retained the ‘reduce’ rating with a 12-month target price of ₹1,825, said early lifting of lockdown and return to normalcy would be positive triggers for Bajaj Finance.

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