Bajaj Finance shares get 'sell' call from Ambit Capital; 16% downside ahead, says brokerage

Ambit Capital has initiated coverage on bajfinance-share-price-362745" target="_blank">Bajaj Finance with a 'Sell' rating and a 12-month target of Rs 5,028. Bajaj Finance's one-year forward valuation implies 25 per cent asset under management (AUM) growth, with 20 per cent return on equity (RoE) over the next decade, Ambit Capital said.

Despite superior technology, analytics, processes and distribution, it's a tall task, Ambit Capital said adding that no Indian lender has grown at over 20 per cent for two decades.

Ambit Capital said Bajaj Finance is the most expensive lender in India, trading at a significant premium over housing finance companies, NBFCs and large-cap private banks. Consistent high growth has led to the stock re-rating over the years.

However, Bajaj Finance’s premium over large-cap banks has reduced, thanks to fall in growth vis-à-vis banks. As growth slows down to 20 per cent for Bajaj Finance over FY25-42, Ambit expects valuation premium over banks to reduce. Ambit is building in EPS CAGR of 30 per cent for FY22-25, with an average RoE of 22 per cent. Over FY25-42, it is building in a loan growth of 19 per cent and RoE of 20 per cent.

Ambit said Bajaj Finance already has a large market share in MSME/ Personal loans within NBFCs where competition is increasing from banks. Home loan growth would be RoA/RoE dilutive due to low net interest margin (NIM) it said.

Moreover, commensurate liabilities scale-up would be a challenge as an NBFC due to various regulatory caps on deposit mobilisation and exposure of capital providers to NBFCs, Ambit said.

"Banking licence is a solution but would compress RoEs to 15 per cent. Fintech companies are unlikely to change the business dynamics much due to late entry and intense competition. Expect slowdown in loan growth and NIM compression to result in AUM growth/ RoE tapering off, resulting in de-rating of stock," Ambit said.

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