Bajaj Finance (BAF) on September 22 informed of its upcoming board meeting scheduled for October 5. The purpose of this meeting is to deliberate on a proposal to raise funds, which may include options such as a preferential issue and/or qualified institutional placement (QIP), subject to obtaining the necessary regulatory and shareholder approvals.
What stands out is that BAF has consistently maintained a leverage threshold of approximately 7.0x in its previous communications. During the last three instances when BAF initiated capital raising plans, its trailing leverage was recorded at 6.3x in March 2019, 6.6x in March 2017, and 6.8x in March 2015, respectively. This move to raise equity capital appears to be happening earlier than anticipated, especially considering our current expectations of a consolidated AUM CAGR of approximately 29% for the period spanning FY23 to FY25.
While we still do not have finer details on the game-plan of Jio Financial, it has plans to initially foray into consumer and merchant lending. This capital raise could then be a tacit acknowledgment that BAF is readying its capital ammunition for how the competitive landscape is going to evolve over the next few years.
BAF reported robust core AUM growth of 29% in FY23 and a remarkable 32% y-o-y growth as of 1QFY24. This strong performance has bolstered their confidence in achieving an AUM CAGR exceeding 30% in the coming years, surpassing earlier expectations of 26-27% CAGR.
Additionally, their expansion into new products like Auto, MFI, Tractor, and CV may further boost AUM growth by an additional 1-2%. This implies that the newly raised equity capital will predominantly fuel their growth initiatives. Furthermore, the prevailing buoyancy in the retail lending sector has likely encouraged the management to consider this capital raise as they anticipate sustained strong retail loan growth in the years ahead.