Buy Bajaj Finance; target of Rs 1050: IIFL

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Buy Bajaj Finance; target of Rs 1050: IIFL

IIFL is bullish on Bajaj Finance and has recommended buy rating on the stock with a target of Rs 1050 in its October 19, 2010 research report.

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IIFL is bullish on Bajaj Finance and has recommended buy rating on the stock with a target of Rs 1050 in its October 19, 2010 research report.

"Bajaj Finance's (BFL) net profit grew 143% YoY to Rs 528 million, ahead of our estimates. NII was up 37% YoY, driven by a robust loan book growth of 67%. PAT growth was further aided by declining loan loss provisions. We are upgrading our FY11-13ii PAT estimates by 10-28% to factor in higher asset growth. We expect BFL to register a 45% loan book CAGR and 67% EPS CAGR over FY10-13ii. The stock currently trades at 2.2x FY11ii book."

"BFL's loan book grew by 67% YoY, driven by a robust 112% YoY growth in disbursements. Loan against property (LAP) continued to drive disbursements growth, increasing 160% YoY. Expectedly, rapid change in mix in favour of secured lending and higher funding cost, due to rising wholesale funds, drove NII lower at 37%. Loan loss provisions (LLP) grew 5%, driving net profit growth by 143%. BFL undertook accelerated provisioning on its legacy loans, which moderated net NPA levels."

"We expect loan growth to sustain the strong momentum, driven by existing product lines as well as introduction of newer products. Revenue growth would moderate, as funding cost rises in 2HFY11, reflecting higher market interest rates. However, LLP would moderate, further driving strong net profit growth in 2HFY11 as well. We believe earnings growth would get a fillip from securitisation of assets, as the company would likely drive asset growth while optimising capital requirement using securitisation."

"We upgrade our FY11ii EPS by 28% and FY12ii and FY13ii EPS by 21% and 10%, respectively, to factor in higher growth. We expect RoE to rise to 23% by FY12ii, as provision charges fall. We expect BFL to register a 45% CAGR in loans and 67% CAGR in EPS over FY10-13ii, as it continues to tap into the underpenetrated small business and consumer durables segments, while benefiting from economies of scale. We retain BUY and raise our target price to Rs 1050," says IIFL research report.

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To read the full report click on the attachment