Buy Bajaj Finance Ltd For Target Rs.8950 - ICICI Direct
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Long term outlook positive…
About the stock: Bajaj Finance is a dominant player in the consumer finance space while it also has made a foray into various other lending segments like housing, SME lending, etc, as and when opportunities have come in.
* Consumer business forms ~35% of overall consolidated AUM
* Bajaj Finance maintained strong operating metrics over various credit and rate cycles leading to >18% RoE and >3% RoA consistently.
Rationale: Strategy to expand digital offerings to aid business growth.
* Launched the wallet business in July 2021 and aims to on-board ~2.5 crore customers by FY23. Currently, it is adding ~10 lakh wallets per month
* Adequate capital at 28.5%, focus on technology and rebound in customer acquisition trend is seen boding well for future growth
* Expect asset quality to stabilise from H2FY22 onwards with faster recovery with gradual unlocking.
What should investors do?
Bajaj Finance’s share price has grown by ~7.2x over the past five years (from ~| 1100 levels in September 2016 to ~| 7800 levels in September 2021). Factoring in management agility towards product development and process modification to suit the situation.
* We maintain our BUY rating on the stock.
Target Price and Valuation: We remain positive and factoring in high NIMs with risk adjusted growth we value the stock at ~10x P/ABV on FY23E and revise our target price to | 8950 from | 6900 earlier. Premium valuations stay.
Key triggers for future price performance:
* Transition towards fin-tech from being a pure lender to propel valuations
* RoE is seen returning to ~15% and RoA at >3%
* A leaner operating model and robust growth guidance.
Alternate Stock Idea: Apart from BAF, in our BFSI coverage we also like HDFC Ltd.
* HDFC Ltd is a leading housing finance company in India with a loan size of ~| 4.98 lakh crore. The company also has a presence in other financial services segments like life insurance, banking, AMC, etc, via its subsidiaries
* BUY with a target price of | 3100.
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