Buy Bajaj Finance; target of Rs 918: Motilal Oswal

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Buy Bajaj Finance; target of Rs 918: Motilal Oswal

Motilal Oswal is bullish on Bajaj Finance and has recommended buy rating on the stock with a target of Rs 918 in its December 24, 2010 research report.

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Motilal Oswal is bullish on Bajaj Finance and has recommended buy rating on the stock with a target of Rs 918 in its December 24, 2010 research report.

"Bajaj Finance (BFL) is a play on rising consumer spending in India, which is expected to grow multifold on rising disposable income. It has metamorphosed itself from Bajaj Auto's finance arm to a diversified NBFC, where its loan book from Bajaj Auto is expected to reduce from current levels of ~30% to 23% by FY12. The company has expanded its presence primarily from two-wheeler financing to consumer durables, SME loans and other Secured loans. It has plans also to foray into infrastructure financing. Diversification into other secured assets business will likely enhance quality of loan book."

"High yield consumer durable financing business and secured loans business is expected to show CAGR of 42% and 100% respectively during FY10-FY12E.Total disbursal and loan book will exhibit CAGR of ~50% during the same period, which provides reasonable visibility to BFL's earnings. BFL credit rating of FAAA/Stable from CRISIL is the highest in whole industry. This helps the firm to reduce its borrowing costs. Balance sheet of BFL is well capitalised and tenure for the majority of borrowings is more than 2 years, which will help contain cost of funding in case of rising short term rates."

"We believe BFL is the best bet in the NBFC space in the wake of high disbursal growth, foray into new business areas, improving asset quality and resulting RoE expansion. The stock is currently trading at 13x/11x of FY11E/FY12E earnings and 2x/1.7x of FY11E/FY12E adjusted book value, which is at around 25-40% discount to valuations of industry leaders. However, our earnings estimates are fairly conservative as compared to consensus view by ~ 20% in FY12E.Favourable interest rate scenario and business mix improvement provide upside risk to our estimates. Therefore, we recommend BUY with 12 months target price of Rs 918(2.3x P/ABV FY12E, 34% upside)," says Motilal Oswal research report.

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To read the full report click on the attachment