Buy Bajaj Finance; target of Rs 1638: Nirmal Bang

Nirmal Bang has come out with its report on Bajaj Finance and has recommended buy rating on the stock with a target price of Rs 1638 in its January 17, 2013 research report.

“Bajaj Finance (BFL) reported net profit of Rs 160 cr (+33.4% YoY) in Q3FY13 driven by growth across consumer and SME business. Management continues with its cautious approach towards infra and construction lending leading to a de growth in the commercial book. The company provided one time provision of Rs 7.5 cr on an infra loan which led to an increase in overall provisions of the company. The asset quality remained fairly stable during the quarter with gross NPA at 1.0% and net NPA at 0.2%. Other operating income witnessed some sort of pressure in this quarter. However, control over marketing and recovery costs led to a remarkable decline in cost to income ratio of the company.”

“The company has been able to grow in a scenario where the consumer discretionary was soft, auto-sector performance was flat and consumer durables industry grew 6-8% on an overall basis. However, Management believes that once the economy recovers leading to an improvement in consumer discretionary spending, Bajaj Finance would be in a position to outperform the broader market. Going forward, we believe that Bajaj Finance will continue to show a strong growth trajectory. With control over NPAs, wider access and strong growth in the book, Bajaj Finance will continue to strengthen its position as a retail finance company.”

“Bajaj Finance continues to enjoy pricing power resulting from the benign competition and healthy asset quality. The company has been consistently delivering healthy performance which is commendable given the current environment. BFL is well positioned to deliver sustainable and profitable growth which is scalable with lower risk.  With control over NPAs, targeting a wider access, scalable product portfolio and strong growth in the book, Bajaj Finance will continue to strengthen its position as one of the leading retail finance company. Based on our calculation of book value on diluted equity we arrive at a target price of Rs 1,638 (P/ABV multiple of 2.1x) indicating further upside of 18% from current levels.  At CMP the stock is trading at 2.09x FY13E ABV and 1.77x FY14E ABV and 10.37x FY13E and 9.64x FY14E EPS. We recommend to buy the stock at current levels for a target price of Rs 1,638,” says Nirmal Bang research report.

FIIs holding more than 30% in Indian cos

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