Buy This Multibagger Large Cap NBFC Stock, Shares Can Surge 16%: KR Choksey

KR Choksey is bullish on Bajaj Finance Ltd (BAF), a large-cap NBFC (having a market cap- Rs 4,34,201 crore). The brokerage has estimated a target price of Rs 8,317 per share for the stock of the NBFC. The brokerage sees a 16% potential upside in 12 months considering if the stock is purchased at the current market price.

Bajaj Finance is the lending arm of Bajaj Finserv Ltd. It has a diverse set of product portfolio which is targeted toward meeting the changing consumer preferences.

Stock Outlook & Returns

Bajaj Finance stock today opened at Rs 7,335 per share, currently trading at Rs 7,393.65 per share, 3.09% up from its previous close. The 52-week low level of the stock is Rs 5,220, recorded on 17 June 2022 and the 52 week high is Rs 8,050, recorded on 18 October 2021.

The stock has performed well over the past 5 years, given multibagger returns. The share price in the past 1 week surged 2.03%, and 2.78% in the past 1 month, respectively. However, in the past 1 year, it gave 3.96% negative return. In the past 3 years, it gave an 89.29% massive positive return. It has given a multibagger return of 296.74% in 5 years.

 

Strong growth momentum in AUM

Over the past 15 years, BAF has had a 37.0% CAGR growth in AUM and a 51% CAGR in PAT owing to geographic expansion, a large customer base, and the adoption of digital technology. BAF has continuously focused on diversifying its product portfolio according to the customer's preference. Accordingly, it has launched an auto financing segment that will start benefitting the company from Q2FY23E. BAF has also been expanding its housing loan business through its wholly owned subsidiary, BHFL (Bajaj Housing Finance Ltd), through cross-selling opportunities to its existing and large customer base. Considering India's improving housing market, this could be a significant growth catalyst for the NBFC. BAF expects annual AUM growth of 25.0-28.0% YoY, aided by strong demand traction & further expansion of its customer franchise.

Aggressive focus on customer acquisition to be the key driver for growth

The customer acquisition for Q1FY23 was at an all-time high of 2.7 Mn. The customer franchise as of 30th June 2022 stood at 60.3 Mn. The NBFC is confident of adding 9-10 Mn customers by end of FY23E. BAF has been continuously focusing on customer acquisition which is expected to be the key growth driver for the NBFC.

Well-positioned to capture the industry opportunity

The increasing demand shift towards premium products across the discretionary categories has been sizeable, with the growth of ~47.0% YoY in FY22. This shift is primarily owing to the changing lifestyle of the people. BAF has been a dominant lender for consumer finance. With the changing demographics & focus on innovative credit offerings, BAF is expected to have the edge over its peers to grab the growth opportunity in the credit market.

Omni-presence strategy & digital transformation to improve the overall performance

BAF has defined an omnipresence strategy to become a prominent payments and financial services company in India. The NBFC expects to be present in 5,000 locations and 2,00,000 points of sale in the medium-long term, expanding from 3,586 locations and 1,38,900+ distribution points as of 30th June 2022. The omnichannel strategy is expected to improve business velocity, eliminate complexity, reduce operational expenses, and facilitate BAF to serve as a single-point interface for its customers. Technology is expected to be the key driver for the business transformation journey of BAF. It will continue to harness it through new product launches, faster customer acquisition, and simplified operational processes.

KR Choksey recommends Buy for a Target Price of Rs 8,317 per share

Bajaj Finance Ltd is currently trading at 8.5x/6.9x P/ABV multiple for FY23E/FY24E Adjusted Book Value. "We assign a P/ABV multiple of 8.0x on FY24E adj. book value of INR 1,040 to arrive at a T.P. of INR 8,317 per share, an upside of 16.1% over CMP. Accordingly, we maintain our "BUY" rating on BAF shares," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of KR Choksey. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.