Bajaj Finance shares at Rs 6,500 or Rs 9,000? Stock jumps 3% on 'near perfect' Q4 results

Shares of Bajaj Finance advanced 3 per cent in Thursday's trade as the NBFC reported a beat on profit and net interest income (NII) and also an improvement in asset quality, leading to positive commentary from brokerages. Earnings for Bajaj Finance grew 30 per cent despite a rising interest rate environment while its return on asset (ROA) came in above 5 per cent for the fifth quarter in a row. JPMorgan said Bajaj Finance justifies premium valuation over private banks and suggested a target of Rs 9,000 on the stock. Morgan Stanley finds the stock worth Rs 8,000.

That said, brokerage targets vary, with Kotak Institutional Equities even suggesting a target of Rs 6,500. This is as a few brokerages felt the increased competitive intensity is likely to reflect in a slower pace of asset under management (AUM) growth going ahead.

The NBFC logged a 30 per cent YoY jump in profit at Rs 3,158 crore for the March quarter and said its net interest income (NII) for the quarter climbed 28 per cent per cent YoY to Rs 7,771 crore. Bajaj Finance said it delivered Rs 16,537 crore of core asset under management (AUM) growth in the March quarter and added 30.90 lakh new customers to the franchise during the quarter. All products and services are now live on Web and App digital platforms, it said adding that its app platform had 3.55 crore net users.

Bajaj Finance not only delivered 4-7 per cent beat on NII, pre-provision operating profit and profit after tax, but its performance and commentary also doused emerging concerns pertaining to growth, competition in B2B business and slowdown in housing portfolio, said YES Securities. The results also addressed concerns over growth trajectory in new loan bookings, cross-sell, and the impact of inevitable NIM moderation on RoA, it said.

"BAF currently trades near its seven-year average 1-year rolling forward price to adjusted book value of 5.6 times. With expectations of 25 per cent AUM CAGR and average 4.7 per cent/23.7 per cent RoA/RoE delivery over FY23-25, we reiterate BUY on the stock with an upgraded 12-month price target of Rs7,865," the brokerage said.

JM Financial said Bajaj Finance continues to defy concerns regarding growth, sustainability of profitability and is exhibiting continued customer growth momentum. March quarter profit growth was led by largely stable NIM and low credit costs.

The management remains confident of adding at least 11-12 million customers and sustain growth trajectory in FY24 as well. We expect Bajaj Finance delivering 27 per cent CAGR in AUM, 29 per cent CAGR in earnings over FY23-25E. At current valuations, BAF is quoting at P/BV of 4.39 times FY25E BVPS and P/E of 19 FY25E earnings, which we believe are reasonable for a quality franchise as BAF," it said while suggesting a target of Rs 7,925.

Kotak Institutional Equities found Bajaj Finance's Q4 results solid.

But "Incremental risk, not priced in, includes the inevitable conversion to the banking format, which, similar to HDFC, brings uncertainties on liability transformation and compliance costs. The risk of sustaining high growth (and hence multiples) in light of a large balance sheet size remains," it said while suggesting a target of Rs 6,500 on the stock.

HDFC Securities sees the stock at Rs 6,750.

Motilal Oswal felt that Bajaj Finance should be able to offset the NIM compression in FY24 with lower operating cost ratios and credit costs. "Our FY24/FY25 estimates have seen a minor increase to factor in the higher AUM growth guidance," it said while suggesting a target of Rs 7,080 on the stock.

increasing scale of operations, concomitant with elevated competitive intensity, is likely to reflect in a slower pace of AUM growth (sub-25%). Further, we are cautious about the quality of earnings from the new-to-franchise (NTF) customers and new businesses. We tweak our FY24/FY25 earnings estimates (+5%/+3%) to factor in higher-than[1]expected margins, lower credit costs, and roll over our TP to FY25. Maintain ADD with revised TP of INR6780 (implied P/E of 25x FY25 EPS).

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