The company’s increased focus on its portfolio with a robust recovery mechanism makes it relatively immune to a slowing economy, Emkay Global said.
Shares of Bajaj Finance climbed 2 percent to touch their fresh 52-week high of Rs 4,084.45 on BSE on September 27.
As of September 26 close, the stock is up 52 percent in Calendar 2019 against a gain of 8 percent in the benchmark Sensex.
Saurabh Mukherjea, founder, Marcellus Investment Managers, has said in a chat with CNBC TV18 that he expects Bajaj Finance to do well when the NBFC sector consolidates.
Mukherjea highlights that Bajaj Finance is among the only two-three NBFCs in the country that figured out how to scale this business model without racking up high NPAs and how to draw money from the wholesale market without making the market nervous.
"We have been buying Bajaj Finance for the last several years and even at the current prices, we continue buying it without any hesitation," he added.
Amid the risks of elevated consumer leverage and prolonged rural distress, brokerage Emkay Global Financial Services is of the view that the company is well-geared for growth and is a top play for the cyclical uptrend.
Moreover, Bajaj Finance is a major beneficiary of the recently-announced corporate tax cut, with its effective tax rate reducing from about 35 percent to nearly 25 percent.
Meanwhile, the company’s board of directors has approved a QIP worth Rs 8,500 crore, which provides comfort over its valuations. This growth capital, as per Emkay Global, should help maintain the company’s growth momentum over the next two-three years.
The company's asset base is expected to grow further, thanks to its collection and recovery system.
"Bajaj Finance’s best-in-class, incentive-driven, specialized and deeply penetrated collection and recovery system has driven our thesis on the company’s ability to maintain low credit costs while growing the asset base," Emkay said.
The company’s increased focus on its portfolio with a robust recovery mechanism makes it relatively immune to a slowing economy, Emkay added.
Amid the signs that the consumer slowdown may be overdone, Bajaj Finance is in the best position to play the India consumption story with the upcoming festive season and several planned online and offline mega sales events ahead.
Emkay Global has maintained both AUM and EPS CAGRs of about 36 percent over FY19-21E (after adjusting for tax cuts), backed by a solid cross-selling franchise and a high-quality sourcing mechanism.
"We upgrade FY20 and FY21 EPS estimates by about 10 percent and 9 percent, respectively and reiterate our buy rating with a target price of Rs 4,550 (6.6 times FY21E P/B and 33.3 times FY21E P/E – after equity dilution)," the brokerage added.
Motilal Oswal Financial Services said, while the company continued its robust growth trajectory, it had also enhanced its capabilities on two fronts – fee income and the deposit franchise - over the past two years.
However, with a scale back in certain products, the brokerage expects the company's AUM growth to slow down to 30 percet year-on-year (YoY) in FY20 against 41 percent in FY19."We keep our estimates unchanged and we have not factored in the possibility of a capital raise in our numbers. We maintain 'neutral' view on the stock with a target priceof Rs 3,550 (7 times FY21E BVPS)," said Motilal Oswal.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.