Bajaj Finance dips 6 per cent as provisions rise

The shares of Bajaj Finance plummeted 6 per cent in Thursday’s trading session as provisions in Q1FY20 surged 69 per cent to Rs. 551 crore from Rs. 327 crore in Q1FY19.

On a positive note, the company reported a consolidated net profit of Rs. 1,195 crore in Q1FY20, posting a YoY growth of 43 per cent. However, the spike in provisions alarmed investors. The slowdown in consumption, particularly in the rural segment, has impacted Bajaj Finance’s growth. As a result, the scrip dipped around 6 per cent to reach a low of Rs. 2,998.

Thus, the 49.75 per cent jump in operating revenues to Rs. 5,801.25 crore in Q1FY20, 42.99 per cent rise in net profit to Rs. 1,195.25 crore and the impressive 41 per cent growth in assets under management failed to inspire confidence in investors. That is because the investors are cognizant of the worries revolving around asset quality. The gross non-performing assets ratio (GNPAs) rose to 1.6 per cent in Q1FY20 from 1.54 per cent in Q1FY19. Net NPA ratio dropped to 0.64 per cent in Q1FY20 from 0.63 per cent in Q4FY19.

Nevertheless, it is heartening to see the management of Bajaj Finance prioritise safety over growth. This is evident in its decision to tighten its underwriting standards for loans. While this move undoubtedly enhanced safety, it also arrested disbursements of digital products to small businesses in rural and urban areas by 15 per cent to 18 per cent. The stringent underwriting rules may impair the company’s growth in the future. Thus, there is uncertainty as to whether the growth in AUM in the June quarter is sustainable.

On Thursday, the shares of Bajaj Finance opened at Rs. 3,195.25 and hit a high and low of Rs. 3,242.25 and Rs. 2,998.00, respectively. The stock closed at Rs. 3,046.40, down 3.95 per cent.