Bajaj Finance Fundamental Analysis: Has The Stock Lost Its Mojo? #Finance

India if you would have invested 10 000 rupees in 2000 in 2022 that stock of Bajaj Finance would be worth 1.6 crore rupees that’s an eye-popping 1 lakh 50 000 return now that

might sound amazing but if you think about Google Facebook and even Netflix Bajaj Finance killed all of them it did better than all those three stocks together also it’s the largest

nbfc in the country with what 3.9 lakh crore rupees now the business is amazing and a lot of investors have made crazy amounts of money on the way up but the real question now is Will Bajaj none;">Finance continue to grow like it has in the past or do we see some cracks in this CashNews.co we’re gonna talk about the cracks that we see in Bajaj Finance

and you tell me do you think the future is as Bleak or as bright now before we dive deeper into the business let’s understand what Bajaj Finance is and let’s start with the

history so Bajaj Finance is part of the Bajaj group we’ll understand the Holdings in just a bit but back then Bajaj was trying to sell scooters I’m sure you know someone who knows

someone who’s driven one of these scooters it was what made India mobile now people could be dropped to school was one of the ways India actually started growing and Capitalism evolved now because it was not affordable a 15 to 20 000 was the cost of a Bajaj chetak or any of

these scooters back then which was a lot of money because salary so to solve this and to increase its Market penetration what Bajaj did is have Bajaj auto Finance and it did

exactly that is go to Bajaj Auto Finance take a Loan and own your two wheeler the company also offered Loans to other two-wheelers rickshaws and scooters as

well but then things changed they wanted to expand the Finance business and move Beyond just these things so they started offering Loans to smes and the

Finance business now started picking up Finance became one of the

ways Bajaj is a company or as a conglomerate was expanding into banking then in 1991 India changed India was opening itself up to the entire world we call this liberalization which meant a foreign investor could invest which resulted in more competition and because of that we had better Services

better quality because that’s what competition does this is when all different brands came to India and there was a surge hiring also happened so the average salaries of people also went up this means India’s economy spurred you can even see this in the Stock Market

because business is boomed you can see it in GDP you can see it everywhere in 1995 that’s when Bajaj Finance decided to go IPO and they did this was when they listed on the

Stock Exchange business was booming and so was the Indian economy then in 1998 Bajaj Finance found its moot it saw that the average Indian consumer now became aspirational

this is when the middle class was forming they want to ride in a new motorcycle they even want a car so now they not only want a job and security they also want a better life and because of this there was a gap between how much they’re earning and what they want and this cap is where Bajaj

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance sat they said if someone wants to buy a consumer durable they can Finance it

through Bajaj Finance and this is interesting because a consumer durable is something the ahmadmi buys but uses for a long period of time so fmcg is another type of consumer

play but it finishes very quickly right like a biscuit or say fruit juice Etc you eat it drink it once and it’s over but when you buy a fridge or a television you use it for years on end and you know Indians right if they buy a fridge they take very good care of it so they knew that people

find long-term value in these electronic or mechanical items so Bajaj said we will Finance it but what’s interesting is that the banks back then thought this is a very

risky proposition and that they will not Finance it so they became the only players in this Niche to actually offer financing so now let’s talk about growth in 2006 the asset under

management for this company was 1 000 crores now that’s a lot of money but going from 2006 all the way to 2022 is the actual story so you can see the AUM from 2006 all the way to 2022 is 2 lakh crores and it’s beautiful right you can see how gracefully it’s interestingly moved up

and of course the stock price has also reflected that we can also see that it’s not only a game of au I’m going up because in many cases Top Line may go up but nothing happens to the bottom line startups but we can see that Bajaj bold; color: #1a73e8; text-decoration: none;">Finance growth in Income and net Profit has also reflected you can see in 2006 that’s what the Income was and then in 2022 that’s what the net Profit is this is apples

to Apple’s comparison of Income and net Profit staggering growth right and yet again this has reflected in the stock price now one thing you need to think about over here is investors are always paying for G which is growth that’s why you pay a multiple

premium over what the company is probably worth today because there is growth happening and that’s why stock prices move up it’s sort of like hope of the future Based on data you have today so as soon as G vanishes the story kind of changes now I’m not saying G has vanished but

keep this at the back of your mind as I tell you this story now one interesting thing happened in 2008 Bajaj Auto demerged into three separate entities and I want to show you what that structure actually looks like so you can understand how the business works so percent so we have Bajaj Holdings

investment this is run by their father um then we have Bajaj finserv and then Bajaj Auto now these uh the father obviously had two sons they both run these companies separately now what’s interesting is that this is listed this is listed and so is this one listed the others are not so as you

can see Bajaj Finance is actually pretty white it has a lot of businesses under it Bajaj Auto you already know what it is it’s interesting that apart from

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance they have all these other businesses as well that you can see over here anyway let’s get back to Bajaj #1a73e8; text-decoration: none;">Finance what we are actually talking about today so in Bajaj Finance the main reason they grew is because of consumer durables so whenever you go to say a

chroma or Reliance shop or anywhere else you can actually buy a product by paying a small down payment and with zero percent interest take that product home it was probably the OG in buy now pay later and zero percent Emi so people thought lonely low interest in here but how does this magic happen

if they’re not charging the customer how does Bajaj Finance actually make money it’s pretty simple so let’s suppose we want to buy a television let’s see how this will

actually work suppose that an entire TV this is the cost of the TV is 60 000 rupees now first the buyer will say okay I’ll pay one third or itna amount that is 20 000 as down payment thank you down payment the rest of this is converted into an eight month Emi now what Bajaj will do

they’ll first charge a one percent processing fee now one percent seems like a very small amount right but it’s actually completely fine here is where a second magic happens they also charge the manufacturer of the TV five percent now they’re basically buy this 60 000 rupee uh TV

for five percent less and that is its margin now that’s equal to about three thousand now the question is why does the manufacturer agree to give a five percent discount to Bajaj so I as the consumer will still buy for 60 000. I only paid a one percent processing fee which goes to Bajaj but

I’m paying full 60 000 rupees I don’t even know that Bajaj was involved in this entire transaction has taken a five percent discount and kept it for itself why will a Samsung or a Sony give five percent to Bajaj well it’s very simple Bajaj

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance is a sales enabler now people can come they can touch and feel the TV they can like it they love the stereo Etc but if they can’t afford it it creates a lot of friction right but when Bajaj

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance says zero percent Emi just pay some down everything else you take no interest the user says okay I’ll just go ahead and buy it and that’s where the magic lies that’s

how Bajaj makes all of its money it takes five percent from the manufacturer and a one percent processing fee from the buyer now for such a model to work you actually need another magic and that magic is called distribution there are what 1 lakh 40 000 retail stores of Bajaj

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance but something’s wrong here I’ve never seen a retail store with Bajaj none;">Finance ever have you I haven’t well actually they don’t own these stores what they basically do if there’s a small shop they go and sit there signage mobile phone Bajaj none;">Finance because as soon as you have a store which is selling a consumer durable you will have customers they will provide the Finance so nice asset light and now

that you have the internet you can do Credit check and all of that online and you can enable that sales cool right that’s why they have such great distribution not only in cities but also in rural lending branches so this is another mode that Bajaj

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance has which is why it can penetrate throughout India so we’ve talked about all the good things and this CashNews.co if you remember is talking about the threats that this business

actually has you can see over here on this screener that Bajaj Finance growth is actually slowing down now based on this do you decide to sell the stock do you own it do you buy more you

can’t look at news and decide what to buy right so you have to have a framework and if you join something called learn app Prime you have to go and apply if you get selected you can learn how trading and investing works completely free but not everyone gets accepted so if you ever thought

you’d like to do analysis like this in a quantitative way probably that’s a great place to start if you go to the descriptions you can go and apply all the best but let’s move on to Bajaj text-decoration: none;">Finance threat the first thing that is most obvious is the market share now there are three things happening over here one there is icic HDFC bank which have ventured into consumer durables which means they will do the same things Bajaj

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance is doing and will compete this could be special offers using their existing distribution and Etc so that’s eating into their market share then we have punawala fin Corp which is

actually magma Finance bought by billionaire other punawala to take over this company they are also competing in the consumer durable space so you have one large player who also has money to

figure out and try to eat into the market share finally we have sriram Finance really popular in the South they have merged to to create the largest retail nbfc with an AUM of 1.7 lakh crore

so we can’t say these guys are new they all have backing they have brand they also have distribution so I think the interesting thing is once there is a good Profitable business and there is a moat um the mode simply starts Vanishing because other people try to emulate that

vote mode and what happens is that only a few players usually can emulate that mode because it has stuff like distribution and AUM Etc and only a few players can do it here it seems like a lot of players are trying to enter but you know does all of this actually translate into the numbers of Bajaj

Finance is its market share actually being eaten so you can see here that from 2006 to 19 and we have another comparison of 2020 to 2022 so two time periods and we’ll compare AUM

Income and net Profit so from 2006 to 19 the AUM grew 36 this is 36 cagr it’s an average of the years from 2020 to 2022 it’s only 19 percent Income 41 versus 19 also a drop this is almost half and the net Profit is also

43 to 20 also half there can be another reason to this also apart from market share being eaten it can also be that Bajaj Finance is really large so having the previous growth rates is just

unsustainable for a very very large company um but you can see it in the numbers that growth has actually slowed down another bigger threat and I thought I’ll say this in the end is Reliance none;">Industries I’m not doing this on purpose because Reliance is trying to enter every business if you think so to put it in the comments I’d love to know what you think this time it’s called jio financial services and like you guys know they have the brand the money and

the distribution to hit most businesses and looks like they’re also going after consumer durables again finally I can see that my query report says that jio Financial Services could emerge as the fifth largest financial company in the country but anyway you tell me what you think one about

market share being eaten two do you also think that growth of Bajaj Finance has slowed down or not put it in the comments below so Bajaj is doing a couple of counter measures to actually keep

up with the times one is that they’ve gone digital really well it’s not just an app that a bunch of people use it has 31 million users they even have peer-to-peer lending which I always thought never made sense but since the RBI created some framework around it it may have a future in

the country we can also see that it also has growing deposits so retail as well as hnis and other people can invest in their deposits this means for Lending business when you have cash at hand it changes everything and make sure that the Liquidity ratios are much better than their

smaller peers and you can see that it has what 43 000 crores as deposits and it’s a 41 growth year on year which is pretty high and you can see because of the growth and the money the way it manages its cash it actually has a good p e ratio so p ratio as you guys know is the premium

you’re paying on the earnings that the company has it’s a multiple of future growth so the higher the PE means higher investors think the growth is possible so you can see here we have all the peers notice the PE Ratio the lowest here is sriram and the highest here is Bajaj which is at

55. now the question is if investors think that the growth is in question and will slow down so there will be a re-rating of this PE from 55 to a lower number it could be 30 could be some other number that’s a 30 percent loss in uh price right there another thing could happen if sriram

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance does really well and wahape growth numbers are very nice a re-rating could happen there as well so that 18 could become say a 35 so that will change price significantly of that company

now you need to tell me what do you think based on everything we discussed today what could that re-rating be please put it in at least two or three lines in the comments below I’d love to understand what you all think but we think looking at all this information it’s still a great

business but that growth factor is actually reduced it will not possibly give the same returns it’s given over the last few years so if you look at Bajaj Finance and

say it went up so much percent in in the past it’s not likely to continue in that same trajectory so let me know what you think I hope you like this analysis a lot goes into making something like this someone writes there is research there’s debate we put in a lot of effort even in

stuff like production and a lot of heart and love and we think anything complex can be broken down if it’s presented beautifully in a structure and hopefully adding a little pop culture to it as well if you think we’re doing a good job please say something nice in the comments it really

encourages us the number of views doesn’t because we don’t know what you’re saying and I hope you found this interesting I’ll see you in the next CashNews.co foreign