Buy Bajaj Finance; target of Rs 806: Nirmal Bang

“Bajaj Finance (BFL) reported net profit of Rs 120 crs (57.1% YoY) in Q3FY12 above expectations. Loan losses and provisions for Q3FY12 declined 18.7% QoQ and 20.3% YoY to Rs 35.8 crs indicating strong credit book. Disbursements sustained the strong uptrend, rising by 67.6% YoY. Gross NPAs declined by 33 bps on QoQ basis to 1.28% and net NPAs declined by 8 bps on QoQ basis to 0.25% thereby indicating an improvement in the company’s asset quality.”

“The growth in interest expended outpaced the growth in interest income resulting from short term credit tightening. Despite this Net Interest Income increased 35.7% YoY and 22.4% QoQ to Rs 348 crs in Q3FY12 resulting from strong growth in disbursements (67.6% YoY). The benign competitive environment has helped the company to pass on the increased cost to the customers across the product categories without any stress. Other operating income showed an increase of 19.1% QoQ and 75.2% YoY to Rs 48.1 crs. Disbursements increased at a robust pace of 67.6% YoY to Rs 4,649 crs driven by strong traction in consumer and SME segment. Loan book increased by 65.0% YoY to Rs 11,052 crs. Going forward, Management has mentioned that Q4FY12 will witness some slowdown as Q3FY12 is a seasonally good quarter.”

“Driven by higher disbursement and focus on secured segments BFL is well positioned to deliver sustainable and profitable growth which is scalable with lower risk. BFL is currently trading at a very attractive valuation amongst the NBFC business space. We believe present valuations of 1.46x FY12E ABV and 7.02x FY12E earnings are extremely attractive given the strong earnings trajectory. We recommend BUY on the stock with a target price of Rs 806,” says Nirmal Bang research report.  

Institutional holding more than 40% in Indian cos

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