Bajaj Finance Profit may see double-digit decline on higher provisions: Q3 preview

Bajaj Finance has reported a 1 percent year-on-year decline in assets under management, but the same increased 5 percent QoQ (up 4 percent adjusted for IPO funding) in Q3 FY21 to Rs 1.44 lakh crore.

Non-banking finance company Bajaj Finance is expected to report a double-digit decline in profit on a year-on-year for the quarter ended December 2020 dented by elevated provisions.

Provisions for bad loans could increase by more than 50 percent compared to the corresponding period, but sequentially the same may decline in the range of 10-20 percent. As a result, profit could increase sharply in the range of 35-45 percent QoQ.

Bajaj Finance has reported a 1 percent year-on-year decline in assets under management, but the same increased 5 percent QoQ (up 4 percent adjusted for IPO funding) in Q3 FY21 to Rs 1.44 lakh crore.

"We expect Bajaj Finance to deliver flat YoY NII growth on the back of 6 bps YoY NIM compression to 10.25 percent. 35 bps QoQ NIM expansion reflects falling funding cost, marginally higher yield in consumer business and partial run-down of excess liquidity," said Kotak Institutional Equities which sees 19.3 percent YoY fall in profit and 58 percent increase in provisions.

Kotak expects the cost-to-income ratio to inch up to 31 percent in Q3 FY21 from 28 percent in the first half of FY21 as business volumes pick up, it, however, remains significantly lower than 34 percent in Q3 FY20. Meanwhile, Motilal Oswal feels cost-to-income ratio could remain at around 28 percent levels for the quarter.

"We build in credit costs of 3.75 percent of AUM, higher than 1.8-2.4 percent in 9MFY20 as the company continues to build in high provisions; this, however, remains lower than the peak of 5 percent in Q2 FY21," said Kotak, while Motilal Oswal expects the same at 4.39 percent of AUM.