Bajaj Finance Posts 28% Rise in Q2 Net Profit, Also Acquires 26% Stake in Pennant Technologies

Bajaj Finance Ltd., India's largest non-bank lender, is set to acquire a 26% stake in Pennant Technologies Pvt. Ltd., a financial technology firm, in a cash deal worth ₹267.5 crore. This move is designed to bolster Bajaj Finance's technology infrastructure.

Bajaj Finance acquisition of the 26% stake will be on a fully diluted basis, comprising 571,268 Compulsorily Convertible Preference Shares (Series A CCPS) with a face value of ₹100 each and it will also buy 422,738 equity shares from Pennant's promoters and existing shareholders. This investment aims to fortify Bajaj Finance's technology roadmap.

Pennant Technologies, founded in 2005, specializes in providing technology services and software products tailored for the banking and financial services industry. In the past three financial years, the company has seen a steady increase in turnover, reporting ₹40 crore, ₹52 crore, and ₹74 crore, respectively.

The acquisition is expected to conclude on or before December 30, 2023, contingent on the fulfillment of conditions detailed in the definitive agreements between the two parties. After the acquisition, Pennant Technologies will become a related party of Bajaj Finance.

Bajaj Finance had recently raised ₹10,000 crore through a Qualified Institutions Placement (QIP) and the issuance of preferential shares, signaling their proactive approach in addressing the emerging competition, particularly from Jio Financial Services' entry into the lending market.

Bajaj Finance Q2 results

On October 17, Bajaj Finance announced its financial results for the July-September quarter of this year. They reported a net profit of ₹3,551 crore, showing a 28% increase compared to the same period in the previous year. While this is a strong performance, it fell slightly short of analysts' expectations, who had predicted a 30% increase to ₹3,626 crore.

Bajaj Finance's higher net profit was driven by improved net interest income and an increase in new loans issued. Additionally, their asset quality improved, with gross non-performing assets (NPA) at 0.91% and net NPA at 0.31% down from 1.17% and 0.44%, respectively, in the same period last year.

During the quarter, Bajaj Finance saw a 26% increase in the number of loans issued, reaching 8.53 million compared to 6.76 million in the same period of the previous year. Deposits also grew, by 39%, reaching ₹54,800 crore from ₹39,422 crore in the previous year. 

Analyst Predictions

Bajaj Finance's shares have performed well this year, gaining 23% and trading at a 52-week high. Market experts have observed that the acquisition of Pennant Technologies will further strengthen Bajaj Finance's position in the industry.

The announcement of the acquisition aligns with the upcoming release of Bajaj Finance's second-quarter (Q2FY24) earnings, scheduled for later on October 17. Analysts anticipate a positive performance from Bajaj Finance in the second quarter of FY24, with a substantial increase in net profit, stable asset quality, and robust loan growth. The company's net interest income (NII) is also expected to see positive growth.

However, Phillip Capital predicts a healthy 33% YoY growth in Bajaj Finance's loan book. They also expect a minor uptick in the cost of funds, with asset quality maintaining stability.

BoFA Securities, a financial advisory firm, believes that Bajaj Finance's stock has good potential for growth over the next year. They recommend buying the stock and predict that its price could reach ₹8,750. Their confidence in this recommendation comes from Bajaj Finance's efforts to diversify its business, its proactive approach to unsecured lending, and its commitment to achieving its financial goals for 2024. In other words.

In the first half of 2023, Bajaj Finance's share price has outperformed the benchmark Nifty 50, surging by more than 24%, while the Nifty 50 has increased by approximately 9%. Over the last six months, Bajaj Finance's stock grew 37%.

Expansion Plans

Bajaj Finance is making smart moves to expand its services, like offering microfinance, financing for new cars and tractors, and gold loans. This aligns with their plans for growth, as reported by Nomura, a brokerage firm. But, there's a catch. They're facing tougher competition, mainly from Jio Financial Services and private banks like HDFC and ICICI, who are also getting into the unsecured lending game, which is a  part of Bajaj Finance's business.

As of June 30, Bajaj Finance had a reserve of ₹12,704 crore for financial stability. In the June quarter, they added 3.84 million new customers and plan to attract 12-13 million more in the coming fiscal year. During the same quarter, they issued a record number of new loans.