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Buy Bajaj Finance, target price Rs 4,300: Haitong

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Haitong has given a buy to Bajaj Finance with a target price of Rs 4,300.

Bajaj Finance has continued to deliver exceptionally strong performance in terms of its financial metrics.

Since FY17, the year of demonetisation, when the company saw some increase in credit costs, Bajaj Finance has managed to grow its AUM by over 2 times and PAT by around 3 times.

This has led to market cap growing by 4.0 times. The NBFC has delivered exceptionally strong growth over the last 9 years, growing its AUM and net profit at a CAGR of 45 per cent and 53 per cent respectively over FY10-19.

While the company has seen a slowdown in its consumer sales finance business over the last few quarters, it has a very well diversified loan book mix which will ensure that the overall growth still stays strong.

Bajaj Finance Ltd., an NBFC, incorporated in 1987, has a market cap of Rs 207272.86 crore.

The share price moved down by -10.01 per cent from its previous close of Rs 3444.85.

The last traded price of the stock is Rs 3,100. Investment RationaleHaitong values Bajaj Finance using a DCF (discounted cash flow) model, resulting in a target price of Rs 4,300 implying a FY22 PBR multiple of 5.3 times.

The brokerage has built in an NP CAGR of 31 per cent over FY19–22, 22 per cent over FY22-36 and a terminal value growth rate of 5 per cent.

The main risk to the rating and target price is lower AUM growth owing to slowdown in the economy, competition from banks and the impact of coronavirus on consumer behavior.

The competitive edge of BAF in consumer lending business lies in its: (a) significant scale; (b) speed of action; (c) point of sale presence; and (d) investment in Technology and analytics. FinancialsFor the quarter ended December 31, 2019, the company reported consolidated sales of Rs 7011.05 crore, up 10.91 per cent from last quarter sales of Rs 6321.45 crore and up 40.63 per cent from last year same quarter sales of Rs 4985.39 crore.

The company has reported net profit after tax of Rs 1614.11 crore in the latest quarter.




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