On 24th August 2021, the shares of Bajaj Finance [1] traded 3.40 % higher at ₹ 6,983.35 a share on BSE, taking its market cap to ₹ 4.22 lakh crore, surpassing that of SBI’s ₹ 3.71 lakh crore as the latter’s shares traded up only by 1.56% at ₹ 415.70 a share.
Is This the First Time?
This is not the first time that this non-banking finance firm [2]overtook India’s biggest lender by assets. Bajaj Finance, on 1st October 2019, was trading on BSE at ₹3,992.20, taking its market cap to ₹2.32 lakh crore. On that day the price of SBI, fell to ₹254.55 a share, bringing down its market cap to ₹2.28 lakh crore, falling behind Bajaj. At that time Bajaj had a total loan book of ₹1.25 lakh crore, while SBI’s stood at ₹22.40 lakh crore.
On 17th Feb 2020 [3], and again on 22nd June 2020 [4]Bajaj pipped SBI in market capitalisation.
How is Market Cap Calculated?
Market cap = Number of shares outstanding x Market price of each share
To have a higher market cap either you should have a greater number of shares, or your share price should be higher. As the former remains more or less constant, generally the latter is responsible for changes in market cap.
Comparative prices [5] of shares (BSE closing) of Bajaj Finance and SBI on important dates:
From the above table, it is evident that the greater market price of Bajaj Finance is propelling its market cap.
Advantage Bajaj
Since its stock split [6] (from ₹10 to ₹2) in 2016 to 24th Aug 2021, Bajaj Finance gained 500.86 % while SBI gained only 55.83 %. The Bajaj stock gained 40% in 2016, 109% in 2017, 51% in 2018 and 60 % in 2019. While Bajaj was consistently posting enviable earnings, SBI couldn’t.
The Art of Pricing Risk
Many opine that [7] Bajaj has cracked the code in consumer lending. Despite most of its loans being unsecured, for its mastery in the art of pricing risk, asset quality metrics of Bajaj remained incredible. As banks were traditionally into lending to corporates for better margins, they entered the consumer finance market late, and their skills of pricing risk are also no match to those of Bajaj Finance.
Metrics Speak:
A couple of metrics of the two companies for the last five years tell the story.
| Book Value [Incl. Reval Reserve]/Share (Rs.) | MAR ’21 | MAR ’20 | MAR ’19 | MAR ’18 | MAR ’17 |
| SBI | 284.47 | 259.96 | 247.53 | 245.53 | 236.14 |
| Bajaj Finance | 597.39 | 530.26 | 339.15 | 287.20 | 175.56 |
The data clearly indicates how Bajaj has surpassed SBI in Book Value
| Basic EPS | MAR ’21 | MAR ’20 | MAR ’19 | MAR ’18 | MAR ’17 |
| SBI | 22.87 | 16.23 | 0.97 | -7.67 | 13.43 |
| Bajaj Finance | 65.85 | 83.25 | 67.52 | 47.05 | 34.01 |
The consistent and far better earnings of Bajaj have made the share highly palatable to investors. The TTM PE of Bajaj is 101.70compared to 15.09 of SBI indicating that the investors are expecting high growth rate for Bajaj in the future. The investors were also concerned about rising NPAs of SBI due to its exposure to the telecom industry. Bajaj Finserv [8] receiving in-principle approval from SEBI on 23 August 2021, for sponsoring a Mutual Fund, also worked in favour of Bajaj Finance’s share price, the next day.
The Road Ahead
It is difficult to predict if Bajaj will stay ahead of SBI in the market cap metrics, but one lesson to take home is that asset quality can challenge asset quantity and brand name.
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Discussion Question
Do you agree that Bajaj Finance gains from the leverage in retail loans and SBI loses due to the dominance in corporate loans? Give three reasons?
Source Articles
[6] “Bajaj Finance Ltd.,” MoneyControl.com.
[7] A. Iyer, “Bajaj Finance Ltd.,” LiveMint.com, May 22, 2019.