Trading 4% Near To Its 52-Week High This Stock Has A Buy Rating

Bajaj Finance Ltd has been rated 'AAA' by different rating agencies such as CRISIL, India Ratings, CARE and ICRA. On 18 October 2021 and 19 April 2021, the stock reached a 52-week high of Rs 8,050 and a 52-week low of Rs 4,362, respectively, according to NSE. This implies the stock is presently trading 4.96 percent lower than its 52-week high and 75.37 percent higher than its 52-week low. On the other hand, the brokerage firm Sharekhan Ltd has placed a buy call on the shares of Bajaj Finance Ltd. From its current market price of Rs. 7650 as of Jan, 3:30 pm IST, the brokerage estimates the stock to hit a target price of Rs. 9,097.

Investment rationale for Bajaj Finance according to Sharekhan

Bajaj Finance is expected to enhance customer engagement through its transformation from 'physical' model to the 'phygital' and is likely to get the first-mover advantage in the financial services industry. The company initiated its process of digitisation in November 2019, which is in the late stages of completion. This would encompass an upgraded consumer app with an 'omnichannel' framework with a suite of payments products and sales/partner productivity. The company intends to provide financial products and services in a seamless manner to a 55.4 million customer franchise. Through its payments business, although not expected to drive large profits, which is by five proprietary apps - marketplaces, EMI Store, Insurance Marketplace, Investment Marketplace, and BF Health, the company plans for customer retention across its value chain and cross-selling across companies.

The company has a well-diversified borrowing mix with money markets contributing to ~47% and banks, deposits, and External Commercial Borrowings (ECBs) constituting 29%, 20%, and 4%, respectively, to the borrowings. Bajaj Finance is well positioned to garner the low cost of funds through deposits, which constitute a large pie of borrowings mix. As of December 2021, the company's liquidity position remains strong at Rs. 14,300 crore. The company also continues to remain well capitalised with a capital adequacy ratio (CRAR) at 27% as of December 2021.

The company's asset quality has been holding up and its gross non-performing asset (GNPA) ratio was 2.5% in Q2FY2022, improved by 50 bps q-o-q. Despite improvement in asset quality, the company increased management's overlay to Rs. 832 crore in Q2FY2022 from Rs. 483 crore as a prudent measure to protect from a potential third wave. In a recent business update, the company said it has not witnessed any adverse impact on its non-performing asset (NPA) position due to the transition to the new method of NPA recognition, which is positive. The company seems to be on track to its earlier guidance of existing FY2022 with GNPA of 1.7% to 1.8% and 0.7% to 0.8% at net non-performing assets (NNPA) level.

Buy With A Target Price of Rs. 9,097

Sharekhan has said in its latest research report that at the current market price, the company trades at 8.9x its FY2023E P/BV. Bajaj Finance stands poised to deliver robust assets under management (AUM) growth of 24% over FY2022E through FY2024E with return on equity (ROE) and return on assets (ROA) of 24.5% and 5.2% over FY2023E and FY2024E, respectively. This can be attributed to improving the auto financing cycle, pick up in mortgage lending business, and lower estimates of credit cost supported by a strong balance sheet. Further, operating efficiencies in terms of lower employee costs and collection are expected to aid profitability

According to the brokerage, Bajaj Finance is one of the most diversified NBFCs with a wide range of product offerings and is one of the early movers from Physical' to 'Phygital'. The company has the ability to demonstrate high credit growth in the new credit cycle, aided by its strong cross-sell franchise and robust risk management framework. Hence, we reiterate our Buy rating on Bajaj Finance with a price target of Rs. 9,097.

Disclaimer

The above stock has been picked from the brokerage report of Sharekhan Ltd. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.