According to Motilal Oswal, Jio Financial has started preliminary consumer loan trials in Reliance-owned consumer durable stores, prompting analysts to hypothesize that Bajaj Finance’s impending capital increase could be a tactical response to this competition. Motilal Oswal had anticipated a 29% annual growth in consolidated assets under management (AUM) for Bajaj Finance over the course of FY23-FY25, but the Bajaj Finance Ltd. board has now called a meeting scheduled for October 5 to consider collecting funds.
Despite manageable leverage and excellent capital adequacy, Bajaj Finance decided to consider an equity capital issue for a number of reasons, according to Motilal Oswal. They think that this capital infusion’s primary goal is not to deal with any prospective stress in the portfolio of rural personal loans.
Jio Financial Services has stated aspirations to initially join the consumer and merchant lending industries, despite not yet disclosing any specific plans. According to channel checks, Jio Financial has already started consumer financing trial programs in Reliance-owned consumer durable and leisure outlets. This has raised the possibility that Bajaj Finance is aggressively getting ready to use its capital resources to confront upcoming competitive challenges in the banking sector.
Bajaj Finance announced strong core AUM growth of 29% in FY23 and 32% in the June quarter, giving investors hope that the AUM compound annual growth rate (CAGR) might top 30% over the coming years, exceeding earlier projections of 26-27% CAGR. The extra equity funding will mostly be used to fund growth projects.
Motilal Oswal believes that there is less chance of imminent merger and acquisition (M&A) activity. Few substantial assets are available for acquisition in the more recent lending divisions, such as Microfinance (MFI) and Vehicle Finance, making near-term M&A in the lending industry improbable. Before considering prospective M&A prospects, Bajaj Finance is more likely to expand its MFI brand organically.
Bajaj Finance’s gold lending business has been expanding effectively, according to Motilal Oswal, and the company would give organic expansion in the MFI sector priority over any prospective acquisitions.
Last but not least, Motilal Oswal emphasized that despite Bajaj Finance’s management’s guidance for a long-term return on equity (RoE) of 21-23%, it is currently able to achieve a RoE of 24-25% because to its use of leverage. A strategic choice to match the RoE with the suggested levels might have been made with the capital increase.
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