Buy This Multibagger Large Cap NBFC Stock, Shares Can Surge 21%, Says ICICI Direct

Bajaj Finance, a strong NBFC with digital footprints made a strong comeback with AUM growth reaching ~28-30% YoY. Harnessing its large franchise base digitally offers huge opportunity. Housing forms 32% of the book. Bajaj Finance maintained strong operating metrics over various credit and rate cycles leading to >18% RoE and > 4% RoA leading to 2x.

ICICI Direct has placed a buy call on Bajaj Finance Limited for a potential upside of up to 21% from its current level with a target price of Rs 8,650 per share. Bajaj Finance is a large-cap company and a leading arm of Bajaj Finserv Limited. Bajaj Finance is one of the most diversified and leading NBFCs in the Indian Market with more than 50 million customers across the country. It has a market cap of Rs 4,35,470 crores.

Stock Outlook & Returns

Friday, 21 October, the stock last traded at Rs 7,192.75 per share after falling 3.22% from its previous close. Its 52 week low level is Rs 5,220 and its 52-week high is Rs 8,045, respectively.

The stock the previous week fell 1.1%, whereas, in 1 month it fell by 6.47%. It has given 14.77% positive return in the past 3 months. Over a year, the stock fell by 7.04%, giving a negative return. In the past 3 years, the stock gave a positive return of 73.84%. Over the 5 years, the stock gave a multibagger return of 289.66%.

Q2FY23 Results

Confidence on growth sustainability to support valuations. NII growth at 31% YoY to Rs 7000 crore, marginal uptick in cost of funds. GNPA, NNPA ratio declined to 1.17%, 0.44%, respectively, in Q2FY23. PAT grew 88% YoY, 7% QoQ to Rs 2840 crore. In Q2FY23, reported RoE at 23.57% and RoA at 5.4% (annualised).

ICICI Direct suggests buy for a target price of Rs 8,650 per share

The stock has given ~2x returns over the past two years. "We believe since the fintech story is embedded in this business, valuations should stay at premium. We raise PAT estimates for FY23E & FY24E by 13% & 2.1%, respectively. No plans to convert to a bank on an immediate basis. We maintain BUY rating on the stock, offering compounding returns,"

It added, "Omnipresence strategy and organic momentum building up offers comfort on growth sustainability. Same holds key for premium valuations. We marginally revise target price to Rs 8650 from Rs 8500 keeping multiple same at 7.5x FY24E ABV."

Key triggers for future price performance

• Adding 10-11 mn customers in a year. Digital transformation, client additions and ambitious targets on AUM growth (25-27% CAGR to Rs 3.8-4 lakh crore by FY25) to boost profitability.
• Strong deposit base and plans to raise to 25% of overall liabilities and reach ~Rs 50000 crore by end FY23E.
• Stable asset quality and controlled costs expected to continue.
• RoE at >18-19% and RoA at >4% with guidance over 4.5%.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. 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.