The simmering competition is likely to build pressure on Bajaj Finance's assets growth, believes Ambit Capital, which has initiated a 'sell' rating on the stock with a target of Rs 5,028 apiece.
"Bajaj Finance’s one-year forward valuation implies 25 percent AUM (assets under management) growth with 20 percent RoE (return on equity) over the next decade. Despite superior technology, analytics, processes and distribution, it’s a tall task," Ambit Capital said in a report, adding that no Indian lender has grown at a rate of more than 20 percent in the past two decades.
The stock is trading at a one-year forward PE (price-to-earnings ratio) of 32x and PB ratio of 5.5x, as per Bloomberg data.
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The NBFC has significant market share in MSME and personal loans, where competition from banks is increasing. "Growth in home loans would be RoA/RoE dilutive due to low net interest margin. Additionally, scaling up liabilities would be a challenge for the company due to various regulatory caps," Ambit Capital's Pankaj Agarwal stated in the report.
One potential solution for Bajaj Finance could be to obtain a banking licence, he noted, but this would likely result in a compression of RoE to around 15 percent. Bajaj Finance has an RoE of 17.5 percent.
In the backdrop of all these challenges, Ambit Capital expects Bajaj Finance's AUM growth to taper off to less than 20 percent from FY25. "This may lead to a de-rating of the stock," the report said.
At 1pm, the stock was quoting at Rs 5,999, lower by 2.2 percent from previous close. It was the biggest loser on the Nifty and the Sensex. Once a multibagger, the stock has lost some shine over the past one year.
In 2022, it underperformed the benchmark Sensex and Nifty indices in for the first time in 14 years.
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