Q2 results review: Bajaj Finance versus Jio Financial – What should you buy post earnings?

Bajaj Finance’s net profit rose 27.8 per cent to ₹3,550 crore in Q2FY24, compared to ₹2,781 crore in the corresponding period last year.

Net interest income (NII) of Bajaj Finance, on a consolidated basis, in Q2FY24 increased by 26 per cent to ₹8,845 crore from ₹7,002 crore, year-on-year (YoY), according to the company’s exchange filing.

Its assets under management (AUM) grew 33 per cent YoY to ₹2.9 lakh crore and interest income showed a growth of 38 per cent to ₹11,734 crore. The company added 35.8 lakh new customers in Q2FY24, taking the total customer base to 7.7 crore as of September 30.

Read More: Bajaj Finance Q2 Results: Net profit rises 28% on year to ₹3,550.80 crore, NII up 26%

On the other hand, Reliance Industries-backed Jio Financial Services reported a net profit of ₹668.2 crore, doubling from the previous quarter on the back of higher income from operations. 

The company’s total revenues stood at ₹608 crore in the September quarter, up 47 per cent from the sequential quarter. While interest income in Q2 was lower than in Q1, a dividend income of ₹217 crore in the September quarter propped up total revenues.

Read More: Jio Financial Services profit doubles sequentially to ₹668.2 crore in Q2 on higher income

Following their impressive quarterly earnings, investors may feel confused about selecting one between them.

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Bajaj Finance or Jio Financial – what should investors choose?

The choice between Bajaj Finance and Jio Financial depends on an investor’s risk appetite and investment goal. While both stocks may be attractive bets for the long term, a majority of experts prefer Bajaj Finance to Jio Financial for the short term.

Also Read: Bajaj Finance share price drops over 2% post Q2 results; what should you do? Here’s what top brokerages say

Manoj Dalmia, CEO of Proficient Equities Pvt Ltd pointed out that Bajaj Finance boasts a long-standing reputation for profitability and a diversified portfolio of financial products and services. At the same time, Jio Financial, backed by Reliance Industries, is a rising star with ambitious plans to dominate the Indian financial landscape.

“Bajaj Finance appeals to those seeking stability and a proven track record, while Jio Financial entices those seeking rapid growth potential. Bajaj Finance offers stability and a proven track record, while Jio Financial presents a riskier yet potentially faster growth opportunity. Investors should carefully assess their risk tolerance and investment goals before deciding,” said Dalmia.

Jignesh Shial, the director of research and the head of the BFSI sector at InCred Capital is positive about Bajaj Finance. He has an ‘add’ rating on the stock with a target price of ₹9,850.

Shial pointed out that Bajaj Finance’s management remains confident of managing healthy profitability despite consistent pressure on margins as the operating leverage comes into play.

“We are building cost to income improving to about 30.4 per cent by FY26F against nearly 35.1 per cent in FY23,” said Shial.

“Lower credit costs amid a superior asset quality trend will also support profits. We are building about 28 per cent CAGR growth in PAT for FY23-26F with best-in-class RoAs (return on assets) of about 4.7 per cent and an average RoEs (return on equities) of about 26 per cent,” Shial said.

Also Read: Jio Fin to enter secured lending

Along similar lines, Shreyansh Shah, a research analyst at StoxBox prefers Bajaj Finance.

Shah said although in Q2FY24, Jio Finance came out with robust profits from its previous quarter, the newly spun-out NBFC still needs to prove its metal over its peers. Bajaj Finance, on the other hand, came out with a decent set of numbers in line with the market expectations.

However, Shah pointed out that Bajaj Finance delivered significant AUM growth and new customer additions, which shows that the lender knows the pulse and has increased its growth momentum. Bajaj Finance’s foray into the payments space will help the NBFC to grow its revenue significantly.

About Jio Financial, Shah said while Jio Financial has a solid financial background due to its strong parentage, it will take time to hold its ground in the lending business.

“We think that Bajaj Finance, although expensive from the valuation point of view, is the preferred stock due to its efficient execution track record and the control of its asset quality,” said Shah.

Prashanth Tapse, Senior VP – Research at Mehta Equities finds one thing is common for both companies- they have significant financial, managerial and operational support from their parents like Bajaj Group and Reliance Industries.

“For a long-term investor, I would choose Bajaj Finance over Jio Financial considering many factors like well-diversified NBFC PAN India reach, proven and strong business model with experienced management and focus on mitigating and managing risk for delivering sustainable growth year on year even after many downturns in the last many years,” said Tapse.

“We have seen Bajaj Finance outperforming the sector and continue with its two-pronged strategy of building scale and maximise profit along with rewarding investors,” Tapse observed, adding that while in the case of Jio Financial, it is too early to analyse as not much data is available to take a long-term bet.

“I believe that with available data points the business model of Jio Financial is still in its nascent stages with a larger valuation coming from its holding company stake. If any investor with a high-risk appetite wants to be on board in Jio Financial he/she has to come with a three-to-five years’ time horizon as there are several plans on cards for long-term success by leveraging the extensive reach and resources of its parent company,” said Tapse.

In a broader way, Tapse believes both companies have equal opportunity to outperform in the space of NBFC because of India’s robust growth outlook.

“Overall, we believe both companies have equal opportunity to outperform in the space of NBFC as we foresee India being a worldwide powerhouse with a $5 trillion economy by 2028-29. With this, India would become the world’s third-largest economy, with every financial company driving the shift,” said Tapse.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Updated: 18 Oct 2023, 12:45 PM IST