The Remarkable Rise of Bajaj Finance: An In-depth Analysis of its Performance and Growth

Over the past five years, Bajaj Finance, one of the largest Non-Banking Financial Companies (NBFC) in India, has seen a significant rise in its share price. This growth can be attributed to various factors, including strong financial performance, robust sales growth, impressive return on equity (ROE), and a diversified customer base. Let's explore what has made Bajaj Finance a multi-bagger stock in the last five years.

Financial Performance and Sales Growth

Bajaj Finance has demonstrated strong financial performance and consistent sales growth over the past five years. In 2017, the company's sales revenue reached a remarkable 9970 Cr, representing a 136.6% increase from the previous year. This marked the beginning of a period of rapid growth for the company. The following years exhibited a mixed trend in sales growth—peaking at 145% in 2019 and reaching a high CAGR of 49% over the five-year period.

Compound Annual Growth Rate (CAGR)

The compound annual growth rate (CAGR) is a measure of the company's annualized average rate of revenue growth. Over the five-year span from 2017 to 2021, Bajaj Finance's sales grew at a CAGR of 49%. This impressive rate of growth indicates the company's sustained success and the growing confidence of investors and market participants.

Diversified Lending Portfolio

Bajaj Finance's diversified lending portfolio is a key driver of its success. The company extends loans to retail, Small and Medium Enterprises (SMEs), and commercial customers, with a significant presence in both urban and rural India. As of 2021, the company managed over 147100 Cr of Assets Under Management (AUM).

Renowned for its Financing Services: Bajaj Finance is also the largest financier for Bajaj Auto. In fiscal year 2020 (FY20), the company financed over 1.1 million motorcycles and about 187000 three-wheelers, accounting for more than 54% of domestic sales of Bajaj motorcycles and 51% of domestic sales of Bajaj three-wheelers.

Return on Equity (ROE)

Another critical factor contributing to Bajaj Finance's growth is its impressive return on equity (ROE). Over the five-year period, the ROE has averaged 18%, with a high of 13% in the most recent year. This robust ROE indicates that the company is generating significant profits relative to the amount of shareholder equity, which is crucial for long-term growth and investor trust.

Basics Earnings Per Share (EPS) - Earnings Quality and Profitability

Let's take a closer look at the company's earnings per share (EPS). While the EPS has fluctuated over the years, it remains a key indicator of the company's profitability. Bajaj Finance's EPS for the past five years is as follows:

The significant increase in EPS from 2017 to 2021 underscores the company's successful growth strategy and its ability to deliver high-quality earnings.

Distribution Network and Pan-India Presence

Bajaj Finance has an extensive distribution network with 2814 branches across India, comprising 1604 rural branches and 1210 urban branches. This extensive network provides the company with the ability to reach and service a vast customer base. Due to its strong presence in rural areas, Bajaj Finance has witnessed significant growth, and this trend is likely to continue.

Conclusion: Bajaj Finance's remarkable rise in its share price over the past five years is a testament to its robust financial performance, diversified lending portfolio, and strong management. The company's presence in rural areas and the support it receives from Bajaj Auto have contributed significantly to its success. With continued investment in its core strengths, Bajaj Finance is well-positioned for further growth and potential multi-bagger status in the coming years.