Is Bajaj Fin getting ready to raise money to compete with Jio Fin? Analysts comment

 Is Bajaj Fin getting ready to raise money to compete with Jio Fin? Analysts comment

After a four-year hiatus, Bajaj Finance (BAF), the largest non-bank finance company in India, plans to raise money. Depending on regulatory and shareholder approvals, the board of directors will meet on October 5 to authorize the fund raise via a preferential issue and/or qualified institutional placement (QIP).

According to observers, the action is unexpected and could be the result of simmering rivalry in the consumer lending market, particularly in light of the recent launch of Jio Financial Services (Jio Fin).

"While we still don't know the exact details of Jio Financial's strategy, it has ambitions to start out by lending to consumers and businesses.

In a research, analysts at Motilal Oswal Financial Services noted that some channel checks indicate Jio Financial has already begun consumer loan pilots in consumer durable/lifestyle outlets controlled by Reliance.

The second-largest NBFC by m-cap, Jio Fin, seeks to expand into the consumer loan, insurance broking, payments aggregator, accounts aggregator, and asset management industries.

Jio Fin's focus, according to the management, is on operational execution, supported by a banking correspondent and merchant network, which may allow it to offer a variety of financial products through different distribution channels and explore cross-sell opportunities.

Thus, this capital raise may be a covert admission by BAF that it is preparing its financial resources for how the competitive landscape will change over the coming years, according to analysts.

Shares of Bajaj Finance increased 5% intraday at the stock exchange before finishing 4.6% higher at Rs 7,819 a share.

Meanwhile, Bajaj Finserv, its sister company, saw a 2.2% increase.

The benchmark S&P BSE Sensex, in contrast, closed 0.02 percent (15 points) higher at 66,023 levels.

fostering long-term expansion

Bajaj Finance stated a core asset under management (AUM) growth of 32% year over year (YoY) in the April–June half of FY24 (Q1–FY24), up from 29% in FY23.

In contrast to early predictions of a 26–27% CAGR, the management now anticipates that the AUM CAGR will exceed 30% over the following few years.

Additionally, BAF is expanding into product categories like auto, microfinance (MFI), tractor, and commercial vehicles (CV), which might boost AUM growth more than anticipated.

Given the robust rise in retail lending, global brokerage CLSA thinks that the possibility of further high retail loan growth over the next years may have prompted the management to consider a capital raise.

Over FY25-26, it has increased its projected loan growth estimates by 2-4 percentage points.

increasing share prices per share

With a focus on physical, app-based, web-based, social, and virtual consumer touchpoints, Bajaj Finance aspires to be a "omnipresent" financial services provider.

According to Jefferies, if the NBFC decides to raise capital in the range of 10–15 percent of its net worth, the issue size may be Rs 8,000 crore ($1 billion).

According to the report, "this would result in FY24 earnings per share (EPS) and book value per share (BVPS) rising by 6% and 11%, respectively, while return on equity (RoE) may see a slight decline to 22%."

BVPS accretion is expected to be between 10 and 13 percent by CLSA, which anticipates raising Rs 10,000 crore.

Bajaj Finance's trailing leverage in the previous fund raising rounds, which took place in FY19, FY17, and FY15, was 6.3x, 6.6x, and 6.8x, respectively.

As of June 23, its capital adequacy was 24.6% and its combined leverage (assets/net worth) was 5.2x.

We anticipate BAF to generate a RoE of 24–25% (pre-capital raising) in FY24 and FY25. BAF has clocked an annualised RoE of above 23% over each of the last five quarters.

"The The management team's long-term RoE guidance stands at 21-23 percent, which means that this capital raise may represent an attempt to bring the RoE within the guided levels," MOFSL continued.