Bajaj Finance: CLSA revises share price target to Rs 9,000 from Rs 6,600

Bajaj Finance on Tuesday attracted a 'Buy' rating from CLSA, as growth in asset under management (AUM) hit a 14-quarter high while the sequential growth in loan for the June quarter beat Street estimates. CLSA sees the stock at Rs 9,000 against Rs 6,600 earlier, saying risk reward is favourable and valuations offer upside potential.

CLSA said while the stock has run up 25-30 per cent in the last three months, it is in line with most NBFCs. Despite the run-up, the stock trades at 25 times FY25 EPS and 5.4 times book value. CLSA said the stock can trade at 30 times one-year forward PE a year later.

"Our residual income model also results in a similar valuation," CLSA said.

CLSA has lifted its AUM growth estimates for Bajaj Finance by 4 per cent for FY24 and 2 per cent for FY25. Over the next two years, it expects operating leverage to result in only an 18-19 per cent OPEX CAGR. It sees profit CAGR f around 25 per cent for Bajaj Finance over the next 2-3 years.

Bajaj Finance's sequential asset under management (AUM) growth at 9 per cent in the June quarter beat CLSA's estimate of 6-7 per cent. CLSA said the AUM growth was extraordinary for an NBFC of Bajaj Finance's size. New customer acquisition was healthy and volume growth in disbursements was strong at 34 per cent YoY against 5-20 per cent in the previous three quarters. This, CLSA said, gave it comfort that the loan growth was not just ticket-size led.

"We lift out EPS estimates 5-6 peer cent, and on evised estimates, the stock trades at 25 times FY25 EPS versus 30 times two-year forward pre-Covid PE and a 35 times PE during the peak in late-2021. We upgrade our recommendation from Outperform to Buy and lift out target price from Rs 6,600 to Rs 9,000 (31x FY25 EPS)," CLSA said.

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