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Stock Outlook
The current market price of Bajaj Finance’s stock is Rs 7,119.35 apiece. The stock hit the 52-week low recently on 17 June 2022 at Rs 5,220 apiece. The 52 week high of the stock is Rs 8,050 apiece, recorded on 18 October 2021. The current market price is trading its low on intraday trade.
Returns on investment
The stock has not performed well over the past 1 month as it gave negative returns of 2.56% in 1 week and 2.54% in 1 month, respectively. However, in the past 3 months, it has given a positive return of 18.24%. It was listed on the exchange in February this year. Over the past 1 week, the stock has fallen 6.69%.
In the past 1 year, the stock has slid down and gave a negative return of 5.16%. In the past 3 and 5 years, the stock has given multibagger returns of 111.07% and 282.98%, respectively.
Growth remains buoyant
BAF entered FY23 with a bang, registering an AUM growth of 28/3% YoY/QoQ in Q1FY23, driven by continued traction in the rural segment (+38/10% YoY/QoQ), SME loans (+31/6% YoY/QoQ) and mortgages (+28/6% YoY/QoQ). The approaching festive season is likely to help the company sustain its strong growth momentum. Additionally, the customer addition momentum remained strong with the highest-ever customer addition during the quarter, leading to customer base growth of 20/5% YoY/QoQ. The company plans to scale up its gold financing business by expanding its geographic reach. Moreover, the launch of non-captive two-wheeler financing in Jul’22 along with plans to foray into new auto loans in FY24 would support the company’s AUM growth moving forward. It also plans to strengthen its credit card segment with its partnerships with RBL Bank and DBS. Thus, multiple new product launches coupled with sustained growth momentum in the existing products and strong momentum on new customer acquisitions should collectively drive growth for BAF going ahead.
Pristine Asset Quality
Asset quality improvement has been remarkable with GNPA/NNPA improving to 1.25/0.5% in Q1FY23 with asset quality metrics now standing better than pre-COVID levels. Similarly, the restructured book tapered to 0.2% of AUM vs. 0.4% QoQ. With asset quality stress well-managed, no further major asset quality shocks in sight, and a management overlay of Rs 1,000 Cr, we believe the company’s credit costs trend to remain muted in the range of 1.6-1.7% over the medium term, and would thereby support the company’s RoA expansion.
Operating performance to remain robust
In Q1FY23, the company’s operational performance was robust driven by strong growth, robust customer additions with support from the digital ecosystem and improved NIMs (+102bps YoY), even as Opex ratios remained elevated. Though BAF is expected to witness a slight margin compression going forward, its improving cost ratios with operating leverage kicking in along with stable credit costs should drive RoA growth. Additionally, we believe with the digital and web platform, which will be fully operational by the end of FY23, will not only give a fillip to the company’s growth but also aid in strong fee income growth. Led by these factors, we expect BAF to deliver superior RoA/RoE of 4.7-4.8%/17-24% over the medium term.
Outlook & Valuation
The company’s digital initiatives and business transformation are key positives to look forward to and are currently progressing well with sequential improvement visible across metrics. With the digital transformation journey likely to be completed by FY23, we believe it should contribute meaningfully to the overall growth. “We believe the marginal compression in NIMs will be offset by improved fee income and stable credit costs, thereby enabling BAF to deliver superior return ratios,” the brokerage has said.
Recommendation
Commenting on the stock, Axis Securities said, “We recommend a BUY on the stock with a target price of Rs 8,250/share, implying an upside of 15% from CMP.”
About the Company
Bajaj Finance (BAF) is one of India’s largest NBFCs for consumer finance with a wide product portfolio comprising loans for two/three-wheelers, consumer durables, housing, and small businesses, among others. The company caters to a customer base of 60.3 Mn and operates its business through 1,368 urban and 2,218 rural lending branches with over 1.3 Lc distribution points.
Disclaimer
The stock has been picked from the brokerage report of Axis Securities. 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.
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