Share price of Bajaj Finance surged over 3.5% on Wednesday after the company reported stellar Q3 results beating street estimates. The company on Tuesday reported an 85.5% rise in consolidated net profit at Rs 2,125 crore for the third quarter from Rs 1,146 crore in the year-ago period. Its Net Interest Income (NII) rose 40% at Rs 6,000 crore as compared to Rs 4,296 crore year-on-year (YoY). Bajaj Finance stock surged 3.6% to touch a 52-week high of Rs 8,043 per share on the BSE. The financial service major delivered an all-round healthy performance in all its key business parameters, said Motilal Oswal. The brokerage believes that its customer acquisitions and new loans booked have reached pre-covid levels and will soon breach historical highs in subsequent quarters.
Should you buy, hold or sell?
ICICI Direct: BUY
Target price: Rs 9,500
Bajaj Finance is a dominant player in the consumer finance space. It has also made a foray into various lending segments wherein housing has grown to a significant size, the brokerage stated. Bajaj Finance’s share price has been largely steady in the past few months while it has jumped 64% in the past year. “We believe since the fin-tech story is embedded in this business, valuations should stay at premium. Hence, We maintain BUY rating on the stock.” It further stated that the core business of Bajaj Finance has got potential, and is well on track to get “transformed into an adaptable new age fin-tech. We roll over our valuations and arrive at a TP of Rs 9,500.”
Motilal Oswal: BUY
Target price: Rs 9,080
Bajaj Finance delivered an all-round healthy performance in all its key business parameters, said Motilal Oswal in its note adding that barring any major disruptions caused by the current COVID wave, thr company is now expected to deliver 26% AUM growth in FY22E and 25% CAGR thereafter. The brokerage expects margin to sustain driven by a reduction in the negative carry, as excess liquidity normalizes, and a decline in interest income reversals. “Given the expected strength in asset quality in 2HFY22 and the sustained milestones-driven progress made by it in its digital transformation program, we reiterate our Buy rating with a TP of INR 9,080 (8.5x FY24E BVPS),” it said.
Morgan Stanley: OVERWEIGHT
Target price: Rs 9,060
Morgan Stanley cut its Bajaj Finance FY22 earnings forecast by 4% owing to higher provisioning estimates. There is some offset from higher NIM assumptions, it said. However, the brokerage kept FY23 and FY24 earnings forecasts largely unchanged. “Valuation is not cheap – but business and earnings momentum with improving economy and BAF’s technological initiatives imply that the stock will keep doing well,” it said. According to the foreign brokerage firm, Valuation is not cheap. However, earnings momentum keeps the stock Overweight. Morgan Stanley has kept the target price at Rs 9,060.
Axis Securities: Hold
Target Price: Rs 8,190
According to Axis Securities, Bajaj Finance Q3FY22 performance was robust, led by higher AUM growth of 9% QoQ, partly on account of festive demand. Company’s PAT growth of 44% QoQ was also stellar. “Despite intense pricing wars, the mortgage segment grew 8% QoQ. Non-interest income growth of 36%/22% YoY/QoQ was led by fee income, likely to be driven by an uptick in cards,” it said. The brokerage has a ‘Hold’ rating on the stock with target price of Rs 8,190 per share.
Kotak Securities: SELL
Fair Value: Rs 6,350
Kotak Securities in its note stated that it expects Bajaj Finance’s overall medium-term trajectory to remain strong even as competition across segments, rising rates and investments in new initiatives will exert some pressure. The brokerage retained Sell rating on the stock saying, “We believe that the initial phase of euphoria on the app is behind us and Bajaj’s ability to seamlessly execute on its well-articulated strategy remains crucial. Bajaj’s management has demonstrated strong execution skills in the past but any slowdown/disappointment on the digital transformation can weigh in on the stock, in light of high investor expectations. The risk-return framework, at this point in time, is hence unfavorable.”
Nirmal Bang: ACCUMULATE
Target price: Rs 7,982
Given the company’s distribution reach, product offerings and the recent aggression in new business acquisition, Nirmal Bang believes that AUM growth will remain strong going forward. Even though competition in the retail finance segment has increased immensely, Bajaj Finance has been able to defend margins, and the brokerage believes that with one of the lowest funding costs in the industry, the company should be able to endure the heightened competition without compromising on pricing/profitability. “We take cognisance of the strong performance delivered by the company. BAF is probably one of the early ones in the lending space to revert to pre-covid (superior) asset quality metrics. Despite increasing overlay provisions, the earnings growth has been solid. We also take note of the increased guidance on the customer acquisition front, which should translate into higher AUM growth. We therefore upgrade our rating to ACCUMULATE, revising our TP to Rs 7982,”, the brokerage firm said.
(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)