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The price for perfection
* Our recent channel checks re-affirm Bajaj Finance’s (BAF) improvements in customer sourcing and collection efficiencies while leaving limited room for errors. We reiterate our theme around BAF being a pure-play India consumption story.
* The recent market discussions on HDB Financial IPO at super normal premium should further support BAF valuations, given its overall superior performance on the lending mix, customer franchise and asset quality profile. (Please see comparable matrix on Page 2).
* The current Tier-1 capital at 16.7% (FY19) should just suffice the desired AUM growth for FY20E. However, considering the historic trend of Tier-1 capital (>15%) and to maintain the growth momentum, we expect an equity dilution of Rs100bn in FY21E.
* Factoring in the dilution, we believe BAF should be able to manage AUM CAGR of ~38% over FY19-21E. Maintain our Buy recommendation with a revised TP of Rs4200 (P/B 6x FY21E (after dilution) and P/E 33x FY21E) and OW stance in our NBFC sector EAP.
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