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Axis Securities
Bajaj Finance (Sell)
Target: ₹4,300
CMP: ₹5,728.20
Bajaj Finance in its mid-quarter update has changed its guidance due to strict lockdowns in many states and impact on employee health on account of Covid 2.0. The management has now guided to additional credit cost of ₹1,100 crore to ₹1,300 crore and an impact of ₹4,000 crore to ₹5,000 crore on AUM growth for FY22.
B2B and auto finance businesses were the most affected in May with volumes dropping to 40 per cent in May’21 from 70 per cent of planned volumes in Apr’21. Other segments were less impacted delivering 85 per cent of planned disbursements.
The second wave has caused a marginal increase in EMI bounce rates in Q1-FY22 over Q4-FY21. Average EMI bounce rates in Q1-FY22 were about 1.08x of Q4-FY21.
Bajaj Finance is focusing on reducing its operating expenses and cost of funds to partially mitigate the financial impact caused by lower AUM growth. We have revised our credit cost estimates upwards by 50 bps to about 3 per cent and AUM growth downwards by about 2 percentage points to nearly 18 per cent for FY22.
While developments on the omni-channel framework are keenly eyed, current valuations are expensive at about 8.5x FY22E P/ABV. We maintain our Sell rating with a target price of ₹4,300/share (5x FY23E ABV) from ₹4,350/share earlier.