Bajaj Finance share price surged 5% to Rs 6,739 on NSE after the company reported 155% on-year rise in consolidated net profit at Rs 2,533.40 crore from Apr-June quarter, beating street estimates. Bajaj Finance reported Rs 993.85 crore profit in the same quarter of the previous year. Net interest income (NII) increased by 48% on-year to Rs 6,638 crore. The company also recorded the highest ever quarterly increase in its customer franchise of 2.73 million in the quarter under review. So far this year, Bajaj Finance stock has tumbled over 7%, underperforming benchmark Nifty 50. Analysts have a mixed view on the stock despite strong growth momentum.
Should you buy hold or sell Bajaj Finance shares?
Motilal Oswal Buy
Target price: Rs 7,320; Upside 14%
According to analysts Motilal Oswal, Bajaj Finance’s customer acquisitions and new loans trajectory have been strong and the momentum will only get stronger from hereon with the digital ecosystem – app, web platform and the full-stack payment offerings – in place. They expect Bajaj Finance to deliver a healthy AUM CAGR of ~26% over FY22- FY24. “Even though the management guided that it will prioritize margins over loan growth, we believe that NIM compression is likely in FY23 given that levers on borrowing costs have largely played out and it has limited ability to pass on the higher cost of funds on a large fixed-rate book,” analysts said.
The brokerage reiterated ‘buy’ rating on the stock with a target price of Rs 7,320 (premised on 7x FY24E BVPS). Key things to watch out for in FY23: evolution of its payments landscape and traction therein; velocity on the consumer app and the progress on the envisaged web platform; potential foray into credit card business from its own balance sheet, and margin trajectory.
Kotak Securities: Sell
Fair Value: Rs 5,400
Kotak Securities believes that while current growth and return matrices remain strong, competitive and macro headlines may not support Bajaj’s rich valuations. The recent stock rally provides an opportunity to cut exposure. The brokerage downgraded the stock to ‘Sell’ with a fair value (FV) of Rs 5,400 (4.9X book; rolled over to Rs5,100). “Delay in execution of the digital strategy and any proposal to apply for bank license pose risk of further de-rating, ” it said. Upside risk stems from improved profitability in home loans (fast growth driver in FY2024E) and higher growth in rural business.
JM Financial: Buy
Target price: Rs 9,000; Upside: 40%
Analysts at JM Financial Services stated that Bajaj Finance’s Q1FY23 results exhibit all round strength delivered by its adroit liability management, continued customer acquisition momentum and a normalization of credit costs to pre-Covid levels. “Mgmt. exuded confidence margins will remain around current level for next three quarters and impact of rising CoF will be gradual. Mgmt. also believes CIR will decline from FY24 onwards as operating leverage will kick-in,” the said. The brokerage estimated 27% AUM CAGR over FY22-24, delivering RoA, RoE of 4.8% and 24.2% respectively. Bajaj Finance remains one of JMFL’s top picks in the financial space. It maintained its ‘buy’ rating on the stock with an unchanged target price of Rs 9,000.
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