Pick Of The Week: Brokerage Likes Rs 4.83 Lakh Crore Bajaj Stock; Fundraising Plan, Q2 Results In Focus

Pick Of The Week: NBFC giant Bajaj Finance is recommended as 'Buy' this week due to its fundraising plan and Q2 results ahead. The fundraising plan is expected to support the company's long-term visions. Bajaj Finance provides consumer finance and has a wide product portfolio. The company's asset under management (AUM) is intact, while its asset quality remains impressive. Currently, the stock is near its 1-year high.

On Tuesday, Bajaj Finance shares soared amidst the bear market. The stock price ended at Rs 7968.95 apiece, up by Rs 159.55 or 2.04% on BSE. The stock was near its 52-week high of Rs 7,999.90 apiece.

Bajaj Finance is the largest NBFC in the country in terms of market cap. As of October 3, 2023, the company's market value was at Rs 4,82,853.85 crore.

Bajaj Finance's board of directors will meet on October 5, 2023, to consider, inter alia, a proposal for raising funds through any or all of various methods including by way of preferential issue, qualified institutions placement, subject to such regulatory/statutory approvals as may be required, including approval of the shareholders of the Company.

Apart from this, Bajaj Finance on September 29th informed exchanges that the company's board of directors meeting is scheduled on October 17 to consider and approve the unaudited standalone and consolidated financial results of the company for the quarter and half year ending 30 September 2023.

Also, Bajaj Finance is among the top dividend-paying stocks in the NBFC sector. In the financial year 2022-23, the company paid a whopping 1500% dividend amounting to Rs 30 per share to its shareholders.

Axis Securities has selected Bajaj Finance as the pick of the current week. In its research note, the brokerage said, "We recommend a BUY rating on the stock with a TP of Rs 8,590."

Here are four key factors to note by Axis Securities for investing in Bajaj Finance shares:

1. AUM growth levers intact:

In Q1FY24, BAF reported a strong operational performance adding 3.84 million customers (+41%/24% YoY/QoQ) and booking ~9.9 million (+34%/31% YoY/QoQ) loans. Resultantly, (core) AUM growth was robust at 32/9% YoY/QoQ, primarily driven by rural business (+21%/7% YoY/QoQ) and mortgages (+27%/7% YoY/QoQ) and pick-up in 2/3-Wheeler finance (+48%/14% YoY/QoQ). Supported by strong customer additions (12-13 Mn in FY24 with a possibility of upward revision) and buoyant growth in the loans booked, BAF expects its AUM growth to be robust at 29-31% for FY24 vs. 25-27% as indicated earlier.

Similarly, buoyant growth in the existing segments along with the new products (microfinance, new auto financing and tractor financing) scaling up and contributing to medium-to-long-term growth should keep overall AUM growth robust.

Axis Securities expects BAF to register a ~28% CAGR AUM growth over FY23-25E.

Recent fundraise announcement to support long-term growth ambitions:

The recent announcement of the raise despite the company having a healthy Tier I capital of ~23%, hints at the company gearing up to achieve its long-term growth ambitions. Post the fundraise, BAF will remain well positioned to deliver a robust RoE of ~21%+ over the medium term versus the brokerage's current estimates of 23-24.5%.

Asset quality remains pristine:

While asset quality across segments continues to remain pristine, BAF will look to strengthen the ECL model and hence expects credit costs to be marginally higher by 6-8bps at ~155-165bps in FY24. The brokerage do not expect any major asset quality challenges and believe asset quality will continue to remain healthy over the medium term.

RoA to remain at over 4.5%:

While the impact on margins in Q1FY24 was lower than anticipated (by 4-6bps), in the absence of opportunities to pass on the higher interest rate to the customers along with refinancing of maturing liabilities at higher rates, margins will continue to face pressure and are expected to contract by ~30bps over the next couple of quarters before stabilizing. Even as BAF continues to invest in technology, operating leverage will help gradually improve its cost ratios over FY24. Thus BAF remains well poised to deliver a healthy RoA of 4.6-4.7% over FY23-25E.