Buy Bajaj Finance; target of Rs 2050: ICICI Direct

ICICI Direct's research report on Bajaj Finance

Bajaj Finance’s AUM witnessed robust growth of 38% YoY to  Rs 72139 crore vs. 34% expected led by the consumer finance and commercial segments. Even after excluding IPO financing of  Rs 500 crore, growth was strong 37% YoY and 4% QoQ. The lifestyle segment and personal reported strong growth. Early festive buying and GST effect for early 20 days was seen Total income growth of 39% YoY to  Rs 1958 crore was largely in line with our estimate led by higher-than-expected AUM growth. NII was moderate at  Rs 1708 crore, up 36% YoY. Operating profit grew 36% YoY to  Rs 1082 crore despite higher operating expenses Headline asset quality improved 2 bps QoQ with GNPA ratio at 1.68% despite shifting from 120 days overdue to 90 days overdue for NPA in Q1FY18. The provision coverage ratio was at ~70% PAT increased 36% YoY to  Rs 556 crore vs. expected  Rs 543 crore

Outlook

A strong performance in a weak economic scenario (healthy return ratios - RoA at >3%, RoE at >20% GNPA at <2%) led to higher investor interest while P/ABV multiple expanded from 1x to >5x since 2013. Factoring in strong growth momentum at 32% CAGR in AUM, we expect PAT CAGR of 34% in FY17-20E to  Rs 4393 crore. BFL’s premium valuations are expected to sustain on better earnings visibility & improving return ratios. We marginally raise our target price to  Rs 2050 from  Rs 2025 based on FY20E valuing the stock at 25.5x FY20E EPS of  Rs 80.3 and maintain BUY.

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