Bajaj Finance target price raised by Jefferies, 18% upside expected led by strong fundamentals
Jefferies has raised its target price on Bajaj Finance, citing strong loan book growth, robust new customer acquisition, and stable margins and asset quality.
Bajaj Finance, the non-banking finance company (NBFC), has received a boost from global research house Jeffries. The NBFC that manages around half of consumer loans in India in volume terms and significant shares in volume for the purchase of electronic items and iPhones is set to benefit from consumer acquisition and stable asset quality driving margin growth.
Jefferies has raised its target price on Bajaj Finance citing its strong loan book growth, robust new customer acquisition and stable margins and asset quality.
The global brokerage house maintains a ‘Buy’ rating on the stock and increased the target price to ₹8,310 per share from 7,280 earlier, implying an upside of around 18% from the current market price.
It sees the company delivering a healthy 27% compound annual growth rate (CAGR) in loans, which, it believes, will support 26% Cagr in earnings over FY23-26 and ROE of 25%.
“We raise earnings a tad bit to factor the fall in funding costs/ improved NIMs (net interest margins) in FY25-26,” Jefferies said in a note.
Jefferies highlighted a presentation made by Bajaj Finance CEO Rajeev Jain who spoke about the company’s strong presence in consumer loans, new verticals being built with a 10-year view and about its digital platforms.
Jain said the company moves over half of consumer loans by volumes, 30% of electronics and 27% of Iphones.
Bajaj Finance announced foray into multiple segments like auto, tractor, commercial vehicles (CV), micro finance institutions (MFI) and emerging corporate.
Jain added that over the past 4-5 years, Bajaj Finance built platforms, apps and network of branches. So now, the launch of loan-products was a natural progression. These are being built with 10 years’ view and will become meaningful over 3-5 years. These strike a balance between secured/unsecured, profit-maximisers/scale builders and new-to-Bajaj Finance connected-segments.
The company also sees scope for operating efficiencies (cost/income ratio can moderate from 35%) that will compensate for some compression in net interest margin (NIM) in FY24.
On succession planning, Jain said the company has built a strong second line and product leaders.
In its investment thesis for the Bajaj Finance stock, Jefferies highlighted the company’s strong loan book growth, driven by a higher-yielding consumer durable loan book, rural financing; strong new customer acquisition and fast-growing cross-sell base franchise along with stable margins and asset quality.
Meanwhile, Bajaj Finance reported consolidated net profit of ₹3,157.79 crore in the quarter ending March 2023, registering an increase of 30.51% from ₹2,419.51 crore in Q4FY22.
Its net interest income (NII) for the quarter rose by 28% to ₹7,771 crore from ₹6,061 crore, YoY.
In Q4FY23, the company's number of new loans booked grew by 20% to 7.56 million, while customer franchise stood at 69.14 million as of 31 March 2023, growing by 20%, YoY.
Bajaj Finance share price has risen by nearly 17% in the last one year. The stock has jumped more than 194% in three years.
At 11:10 am, the shares of Bajaj Finance were trading 0.28% higher at ₹7,042.50 apiece on the BSE.
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