Buy this multibagger large cap financial sector stock for double-digit gains in 6-9 months
Stock market outlook
The current market price of Bajaj Finance shares is Rs 7,119.35 each. The stock recently hit a 52-week low on June 17, 2022 at Rs 5,220 apiece. The action’s 52-week high is Rs 8,050 coin, recorded on October 18, 2021. The current market price is trading at its intraday low.
Returns on investment
The stock has not performed well over the past month as it gave negative returns of 2.56% in 1 week and 2.54% in 1 month, respectively. However, in the last 3 months, it has given a positive return of 18.24%. It was listed on the stock exchange in February this year. Over the past week, the stock has fallen 6.69%.
Over the past year, the stock has fallen and returned negative 5.16%. Over the past 3 and 5 years, the stock has yielded multibagger returns of 111.07% and 282.98%, respectively.
Growth remains strong
BAF came into full force in FY23, recording assets under management growth of 28/3% YoY/Q1 in Q1FY23, driven by continued traction in the rural segment (+38/10% YoY /TQ), loans to SMEs (+31/6% YoY/T/T) and real estate loans (+28/6% YoY/T/T). The approach of the end of year celebrations should enable the company to maintain its strong growth momentum. Additionally, customer addition momentum remained strong with the highest number of customer additions ever in the quarter, driving customer base growth of 20/5% YoY/QT. The company plans to expand its gold financing business by expanding its geographic reach. Additionally, the launch of non-captive financing for two-wheelers in July 22 as well as plans to foray into new auto loans in FY24 would support the company’s AUM growth in the future. ‘coming. It also plans to strengthen its credit card segment with its partnerships with RBL Bank and DBS. Thus, multiple new product launches, coupled with continued growth momentum in existing products and strong new customer acquisition momentum, should collectively drive BAF’s growth going forward.
Impeccable asset quality
The improvement in asset quality has been remarkable, with GNPA/NNPA improving to 1.25/0.5% in Q1FY23, with asset quality metrics now better than pre-COVID levels. Similarly, the restructured portfolio narrowed to 0.2% of assets under management versus 0.4% QoQ. With asset quality stress well managed, no other major asset quality shocks in sight and a management overlay of Rs 1,000 Cr, we believe the company’s credit cost trend will remain moderate within a range. of 1.6 to 1.7% in the medium term, and would thus support the expansion of the company’s RoA.
Operational performance that remains solid
In Q1FY23, the business’ operating performance was robust, driven by strong growth, robust customer additions with digital ecosystem support and improved NIMs (+102 bps year-on-year), although Opex ratios remained high. Although BAF is expected to experience slight margin compression going forward, its improving cost ratios with stable operating leverage and credit costs should drive RoA growth. Additionally, we believe that the digital and web platform, which will be fully operational by the end of FY23, will not only provide a boost to business growth, but will also contribute to a strong growth in commission income. Driven by these factors, we expect BAF to deliver a higher RoA/RoE of 4.7-4.8%/17-24% over the medium term.
Outlook and assessment
The company’s digital initiatives and business transformation are key positives to look forward to and are currently progressing well with sequential improvement visible across metrics. With the digital transformation journey expected to be completed by FY23, we believe it should contribute significantly to overall growth. “We believe the marginal compression in NIMs will be offset by improved fee income and stable credit costs, allowing BAF to offer superior yield ratios,” the brokerage said.
Commenting on the stock, Axis Securities said, “We recommend a BUY on the stock with a target price of Rs 8,250/share, implying a 15% upside from CMP.”
About the company
Bajaj Finance (BAF) is one of India’s largest consumer finance NBFCs with a broad product portfolio including loans for two/three wheelers, consumer durables, housing and small businesses among others . The company serves a customer base of 60.3 Mn and operates through 1,368 urban loan branches and 2,218 rural credit branches with over 1.3 Lc distribution points.
The security was selected in the brokerage report of Axis Securities. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.