Accumulate Bajaj Finance; target of Rs 1202: KR Choksey

KR Choksey's research report on Bajaj Finance

Sturdy AUM traction (38% Y-o-Y growth), margins expansion (NIMs at ) and stable asset quality (gross NPA at 1.58%) drove the earnings for the quarter. PAT at INR 4.1 bn stood tad above our estimates recording 46% Y-o-Y growth. The impeccable customer franchise can be attributed to the increased disbursement and customer traction; number of loans disbursed surged 56% YoY to 2.2 mn, number of new customers rose 30% to 0.83 mn. While sequentially AUM growth stood almost stable, the annual growth was driven by staggering traction in LAS (82% Y-o-Y growth) and SME loans (55% Y-o-Y growth). However, the Management strategies to curb growth in the consumer durable finance segment maintaining prudency, BAF will re-consider the same over the course of the year.

We reckon that the risky unsecured portfolio expansion, business growth saturation, steep valuations (the stock is trading at the higher end of its historical band chart) and most of the positives being priced in, we believe the upside for BAF from hereon stands capped. We, therefore, maintain ACCUMULATE) rating on the stock, but tweak our target price to INR 1,202 valuing the company at 5.6x P/ABV FY18E. At CMP the stock trades 5.0x FY18E P/ABV.