Rural customers are particularly important for housing loans, small business loans and other commercial loans. This is why Siddharth Purohit of SMC Capital believes that investors should be ready for some moderation in loan growth for Bajaj Finance in the coming quarters. “Based on channel checks, there is a significant quantum of enquiries but these are not getting converted into sales. While it could convert post the general election, there could be some growth moderation in the meanwhile,” he adds.
Therefore, any slowdown is likely to derail the growth trend for Bajaj Finance and impact its valuations, which at 6.6 times FY20 estimated book value leaves little room for error and also makes Bajaj Finance the most expensive NBFC stock among the top 15 listed peers.
What could perhaps help Bajaj Finance tide over any possible slowdown is its increasing dependence on its existing customers. Known as cross-selling strategy, over the recent years, the financier has increased its product offering to its existing customers. Consequently, even if there is a blip on new client accretion, old borrowers could be reached out for extending fresh loans. This is why Nischal Maheshwari, CEO, Institutional Equities, Centrum Broking, believes that Bajaj Finance has transformed itself into a play on artificial intelligence rather than on retail demand. Currently, its base comprises
19.7 million customers acquired through cross-selling. Analysts at Jefferies note that this is Bajaj Finance’s key moat to combat the rising competition in the segment.
Therefore, the coming quarters will be critical to gauge if the cross-selling strategy of Bajaj Finance helps it tide over the slowdown in its underlying markets.
With other factors such as the cost of funds at about 8 per cent and net interest margin (a measure of profitability) at over 9 per cent taken care of and well within the comfort zone, Bajaj Finance’s loan growth will be the key monitorable aspect in the March quarter.