Bernstein goes bullish on Bajaj Finance, upgrades to ‘outperform’, sees massive 45% upside potential

The strong quarterly performance posted by Bajaj Finance hints at a recovery being staged. With this, global brokerage and research firm Bernstein has turned bullish on the stock.

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The rotation away from tech stocks seems to have taken hold and market leadership is likely to change.

Bajaj Finance shares surged 3% to hit a high of Rs 5,168 per share on Thursday morning, making it once of the top Sensex gainers. The stock jumped as investors reacted to the strong on-quarter growth in net profit that the firm reported on Wednesday. Consolidated total income of Bajaj Finance in the fiscal third quarter surged to Rs 1,146 crore. The strong performance hints at a recovery being staged by Bajaj Finance. With this, global brokerage and research firm Bernstein has turned bullish on the stock upgrading the target price and its rating of the stock.

“We upgrade Bajaj Finance (BAF) to Outperform. Bajaj Finance, after 3 quarters of risk consolidation, looks set to come back to its pre-pandemic growth trajectory in FY22,” the brokerage firm said in a report. The bullish sentiment is helped by the digital capabilities of Bajaj Finance. “Its Fintech initiatives position it as an omni-channel ‘pay later’ player with an established cross-sell customer base of ~24 Mn users and 2.6k merchant relationships,” they added.

Technological advances to aid growth

The report said that Bajaj Finance has leveraged technology to reduce operating costs as they scaled up the in-store consumer-durable lending platform. The new tech architecture of Bajaj Finance, build on cloud allows it flexibility, scalability and speed, according to Bernstein. This can help the firm launch new products fast and integrate application layers with strong analytics.

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Further, the management hopes that the digital transformation project will help them lower cost of acquisition, increase customer acquisition volumes and enhance its cross-sell franchise. The Bajaj Pay platform will roll out this quarter, enabling customers and merchants to make payments and integrating EMI cards and 0% EMI programs. “We believe BAF has the ingredients for building a unique omnichannel Buy-now Pay-later (BNPL) marketplace – it has the merchant relations, the cross-sell customer base and a tested credit engine. The missing piece, for now, is the payments experience. Bajaj Pay will fill that whitespace,” the report added.

Heading toward normalisation

After having suffered during the pandemic, Bajaj Finance has reported a sharp bounce back in customer acquisition in the October-December quarter. On the asset quality front, pro-forma NPAs stood at 2.86%, up from 1.61% on-year basis. “With normalized sanctions next quarter onwards, we expect the loan growth outlook to normalize. Sequential recovery in consumer durable and unsecured lending is positive. Competitive interest rates, stamp duty benefits and macro-economic recovery will support real estate and mortgage markets,” analysts at Bernstein said. 

Target price

Bernstein has upgraded Bajaj Finance, valuing it at 40x FY23E EPS for its tech proposition, core franchise strength and execution track record. The brokerage firm expects the stock to surge to the target price of Rs 7,240 per share, up from the previous target price of Rs 3,300 per share. The revised target translated to a massive 45% upside.

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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