ICICI Direct is bullish on Bajaj Finance has recommended buy rating on the stock with a target price of Rs 2400 in its research report dated May 18, 2018.
ICICI Direct's research report on Bajaj Finance
AUM witnessed growth of 34% YoY to Rs 80444 crore, which was in line. It was led by the consumer finance & commercial segments NII increase was higher than estimate at 41% YoY to Rs 2083 crore led by AUM growth and strong calculated margins of ~10% vs. estimate of ~9%. Operating profit increased 40% YoY to Rs 1373 crore Headline asset quality stayed steady QoQ with GNPA ratio at 1.48% and NNPA ratio at 0.28%. The provision coverage ratio improved to 75% vs. 68% in the previous quarter Aided by higher than estimated NII growth & steady asset quality, PAT came in strong & above estimates at Rs 721 crore (up 60% YoY) New customers acquired during Q4 rose 51% YoY to 37.8 lakh Bajaj Housing Finance (BHFL), a 100% housing finance subsidiary that started its operations in July 2017, has become fully operational in Q3FY18. Its AUM as of Q4FY18 was at Rs 3589 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 33% CAGR in AUM, we expect PAT CAGR of 37% in FY18-20E to Rs 4975 crore. BFL’s premium valuations are expected to sustain on better earnings visibility and improving return ratios. We revise our TP higher to Rs 2400 from Rs 2050 earlier based on FY20E valuing the stock at 28x FY20E EPS. We retain BUY rating.
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