Accumulate Bajaj Finance; target Rs 1554: KRChoksey

KRChoksey is bullish on Bajaj Finance and has recommended accumulate rating on the stock with a target price of Rs 1,554 in its January 16, 2013 research report.

Bajaj Finance delivered strong performance with PAT of Rs160 crore growing 33.4% Y-o-Y in line with our expectation. NII grew strongly 35.5% Y-o-Y and 20.4% Q-o-Q to Rs 471 cr aided by AUM growth 41.3% y-o-y and improvement in spreads. Non interest income declined 33.6% Q-o-Q primarily attributable to slower growth in general insurance cross sell related fee and other distribution fee lines. Cost to income ratio further improved 142bps Q-o-Q to 43.6%. Provisions for loan losses declined marginally from Rs53.4 crore in Q2FY13 to Rs51.3crore in Q2FY13 mainly due to continuous stress in construction equipment portfolio. Broadly asset quality remains stable sequentially; however, construction equipment portfolio witnessed increase in slippages which largely contributed Q-o-Q increase in NPAs. Net NPA stood at 0.20% vs. 0.20% in Q2FY13 with 80% PCR. Asset under management increased 41.3% Y-o-Y driven by consumer finance (43.3% Y-o-Y) and SME loans (51.5% Y-o-Y). Strong AUM growth 41.3% Y-o-Y led to strong NII growth: Net interest income showed strong growth of 35.5% y-o-y supported by AUM growth 41.3% y-o-y and improvement in spreads. Asset yields increased 121bps Q-o-Q primarily attributable higher incremental mix from consumer finance. The management expects 30-40bps cost of funds reduction in next couple of quarters. The management also highlighted that pricing remain stable in 4QFY13. We are building in spreads 9.7% and 9.6% in FY13 & FY14 respectively factoring pricing pressure in retail products. Consumer finance and SME finance supported business growth- Assets under management grew 41.3% y-o-y driven by consumer finance (43.3% y-o-y) and SME finance (51.5% y-o-y). Within the consumer finance business, the company has gained market share both in two / three wheeler segments (24% of Bajaj Auto’s domestic sales in FY12 to 30% in 9MFY13) and consumer electronic finance (increased from 11% in FY12 to 14% in 9MFY13.) SME finance book growth is driven largely by strong cross sell products in the group vendors and innovative product offering to self employed and ULTRA HNI clients. The management believes expanding network in tier II and tier III cities coupled with improved cross selling capabilities would support business growth coming years. We expect loan book to grow 36.3% CAGR from FY12-FY15 supported by higher market share in consumer finance business and healthy growth in small business finance segment. Broadly asset quality remains stable: Net NPAs remained stable 20bps in Q3FY13 reflecting overall stable asset quality except construction equipment portfolio. Collection efficiency in other product lines has been stable Q-o-Q basis. As far as infrastructure loan portfolio, the company has an exposure of Rs45 crore which is under CDR loan restructuring. The company has accelerated provisions by making additional provision of Rs7 crore during the quarter. Overall collection and asset quality held up well in most of the product lines during the quarter. Valuation & Recommendation: Bajaj finance has delivered another strong and consistent operating performance during the quarter. We believe Bajaj Finance being wholesale funded entities would benefit from decline in wholesale rates and improved business prospect for small businesses in coming quarters. We believe Bajaj Finance continue to deliver 3% plus RoA and 20% plus RoE on sustainable basis in medium term. At Rs1,395 the stock trades 1.7x FY14 price to book and 8.9x FY14 earnings, further scope to re-rate on strong earning visibility and sustainable return ratio. We maintain our ACCUMULATE rating on the stock with target price of Rs 1,554 (potential upside 11.4%)," says KRChoksey research report. Non-Institutions holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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