Bajaj Finance, Bajaj Finserv hit record highs in a flat market

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Shares of Bajaj Finserv and its lending and wealth advisory arm Bajaj Finance have hit their respective record highs on the BSE in intra-day trade in otherwise flat market.

Bajaj Finance hit a new high of Rs 2,177, surging 19% in past eight trading sessions. On comparison, the S&P BSE Sensex was down 2.2% since May 10, 2018.

Bajaj Finance had reported a better than expected 60% year on year (YoY) jumped in its standalone net profit at Rs 7.21 billion in March quarter (Q4FY18). Net revenue from operations grew 40% at Rs 23.43 billion against Rs 16.78 billion in the corresponding quarter of previous fiscal.

Assets quality of the company improves during the quarter with gross non-performing assets (NPA) and net NPA as of March 31, 2018 stood at 1.48% and 0.38% respectively.

“As required by RBI guidelines, the Company has moved its NPA recognition policy from 4 months overdue to 3 months overdue in this financial year. The comparable Gross and Net NPA on 4 months overdue stood at 1.28% and 0.29% respectively as against 1.68% and 0.44% respectively as of March, 31 2017,” Bajaj Finance said in a press release.

Most of the brokerage houses upgrade the 12 month target price of Bajaj Finance in the range of Rs 2,119 to Rs 2,400.

“A strong performance in a weak economic scenario (healthy return ratios - RoA at >3%, RoE at around 20% GNPA at <2%) led to higher investor interest while P/ABV multiple expanded from 1x to >5x since 2013. Factoring in strong growth momentum at 33% CAGR in assets under management (AUM), we expect PAT CAGR of 37% in FY18-20E to Rs 49.75 billion. Bajaj Finance’s premium valuations are expected to sustain on better earnings visibility and improving return ratios,” analysts at ICICI Securities said in result update.

The brokerage firm revise target price higher to Rs 2,400 from Rs 2,050 earlier based on FY20E valuing the stock at 28x FY20E EPS and retain BUY rating.

“Bajaj Finance has continued to deliver best-in-class performance–growth numbers and asset quality better than peers. Continued investment in technology and distribution network and efforts to digitize the franchise should yield greater dividends/benefits going forward. Tapping mortgage/housing opportunity through a dedicated vertical (BHFL) should yield better returns and be accretive to the overall entity. Bajaj Finance enjoys expertise in area of retail finance backed by a granular product mix. The company has consistently delivered industry-leading profitability,” analysts at K R Choksey Shares and Securities said in result update with ‘accumulate’ rating on the stock and 12 month target price of Rs 2,346.

Bajaj Finserv too hit a new high of Rs 5,927, up 3.7%, surging 13% in past eight trading sessions. Bajaj Finserv, a financial conglomerate under the flagship brand of Bajaj and leadership of Sanjeev Bajaj, witnessed a sharp surge in earnings in all three key business segments.

Bajaj Finserv consolidated revenue grew 25% YoY to Rs 88.29 billion, primarily led by healthy growth in finance business. Consolidated net profit grew 28% YoY to Rs 6.86 billion, led lending business, partly offset by life insurance. Asset quality continued to remain steady in Q4FY18.

Analysts at ICICI Securities remain positive on the stock due to continued traction in AUM with control on opex and asset quality, strong and profitable growth in general insurance and growth in new business premium, especially in individual segment.

Factoring in fundamental strength, the brokerage firm revise target price to Rs 6500 (Rs 6000), based on SOTP valuation, implying a multiple of 21.4x on FY20E consolidated earnings, with maintain ‘buy’ rating on the stock.


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