Muthoot, Bajaj Finance, IndusInd Bank: Bernstein initiates coverage on these 3 stocks, shares target prices

Bernstein has initiated coverage on three stocks namely Bajaj Finance Ltd, IndusInd Bank Ltd and Muthoot Finance Ltd. It suggested a 'Market-Perform' rating on Bajaj Finance (BAF) and 'Outperform' ratings on IndusInd Bank and Muthoot Finance. Calling Indian banking sector "a land of compounders". the brokerage said the domestic banking sector remains in good shape with strong credit growth, benign asset quality and still healthy margins, continuing to play host to some great compounding stories.

"While the large private sector banks remain clean compounding stories with their continuous deposit market share gains and emerging scale benefits, the niche lenders (typically operating as Non-bank Financial Companies (NBFCs) and Housing Finance Companies (HFCs)) offer equally compelling compounding stories," it said.

Bajaj Finance: Target price. Rs 6,800

Bernstein called Bajaj Finance a true superstar in the Indian lending landscape with flawless execution but said much of it is priced into Bajaj Finance's rich valuations. While it still sees a healthy growth ahead, it sees room for consensus earnings cuts given several headwinds.

"These challenges include 1) a sector-wide trend of slowdown in consumption credit, 2) an already high scale of BAF that limits outperformance vs. the sector, 3) risks of scale-up in new segments having limited overlap with current core segments, and 4) increased competitive intensity. We expect an earnings CAGR of 21% (FY24-26) and value BAF on PE (24x FY25E EPS)," it said.

IndusInd Bank | Price target: Rs 1,800
Bernstein sees IndusInd Bank as a quasi-NBFC given its NBFC-like loan book composition and a weak deposit franchise. The bank is well positioned for a potential rate easing cycle and has high exposure to attractive segments (Commercial vehicles, Microfinance). Between FY24-26E, it expect IndusInd Bank's return on equity (ROE) to be 15-16 per cent and a loan growth of 18 per cent and value it on Price to book value of 1.9 times.

Muthoot Finance | Target price: Rs 2,000)
Bernstein said it sees a long and shiny road ahead for gold loans, a unique segment in India arising from Indian households’ insatiable love for gold and its use as a collateral for borrowing, and Muthoot is the best play in the segment. I expects 19 per cent earnings CAGR (FY24-26E) for Muthoot Finance and values it on PE (15x FY25E EPS).