Bajaj Finserv, which has plunged more than 50 percent so far in 2020, maybe down but not out.
The stock has rallied more than 200 percent in the last five years in absolute terms and has also outperformed the S&P BSE Sensex each year. The stock was trading at Rs 1,427 on April 1, 2015.
Kotak Securities highlighted Bajaj Finserv in its weekly report ‘Pick of the week’ segment. The domestic brokerage placed a 12-month target of Rs 7,150 on the stock, an upside of about 50 percent from Rs 4,747 recorded on April 22.
Bajaj Finserv’s partnership with Axis Bank will likely provide some upside to volumes and improve operating leverage, not factored at this stage, the note said.
Lower ULIPs volumes, mostly in FY21E, will likely put pressure on VNB growth for the year. However, Kotal Institutional Equities (KIE) expects both life and non-life businesses to benefit from higher demand for protection in the current environment.
The current holding company discount of Bajaj Finance is probably at the peak, said the note. The current discount appears at the highest level when compared with year-end data points.
This provides two solid levers for stock price appreciation--reduction in holding-company discount and appreciation in the stock price of Bajaj Finance, the note said.
The uncertainty over the lockdown and collection behaviour will prompt Bajaj and all lenders to slow down new loans. KIE has always liked the franchise of Bajaj Finance and management of the company, though high valuations had held back from having a more aggressive stock view
KIE continues to remain assertive on Bajaj Finance’s ability to get back on the growth track even though FY21E is likely to be weak.
KIE expects the Bajaj Finance stock to trade at 3.6X March 2022E. It remains the key value driver contributing to about 66 percent to Bajaj Finserv’s SOTP. KIE upgraded the stock to “buy” from “add”.
Another brokerage firm, Sharekhan, also maintains its “buy” rating on Bajaj Finserv with a target price of Rs 6,800. The brokerage is of the view that both Life and General Insurance businesses have healthy solvency ratios and strong operating metrics.
“We have revised our estimates of subsidiaries to factor in the rising risks and accordingly have adjusted the valuation multiples,” it said.
Bajaj Finserv has consistently seen strong performance from its lending business. All three of Bajaj Finserv’s businesses are strong franchises and are well poised to deliver sustainable profitability going forward.
“We believe that weakness in the stock may be an opportunity for investors to add it to their long term portfolio. We maintain our Buy rating on the stock with a revised SOTP-based PT of Rs. 6800,” said the note.
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