Bharat Fin story intact but valuations currently steep: Haitong

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26 Aug, 2025 12:21

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Bharat Financial Inclusion can see 35-40 percent growth in earnings over the next 2-3 years but the stock valuations are currently steep, says Santosh Singh of Haitong Securities.

Singh was sharing his outlook with CNBC-TV18 on the microfinance major, which has seen the exit of two top-level executives in the last couple of years amid controversies that weighed on the stock's market sentiment.

Singh believes while the top-level exits will not affect operations and the stock’s sentiment has improved, the company has indeed lost people who had contributed a lot to bring it up to where it is today.

He also shared why he believes Bharat Financial will have to opt for a bank licence only over the next 3-4 years.Below is the verbatim transcript of Santosh Singh’s interview with Prashant Nair and Ekta Batra on CNBC-TV18.Prashant: How would you look at this QIP and what can this do for how investors look at this because this does change its thing, there is dilution but there is increase in book value, valuations look a little more attractive. Just run us through some of the numbers? A: I am looking at Bharat Financials, the way we have looked at for years is that we have looked at it on price to earnings (P/E) basis rather than price to book (P/B) basis given the sort of growth rate we have seen because capital has not been a problem for a stock which can grow this faster. So, we have always looked at P/E basis.Definitely for next two to three years, we can see that 35-40 percent growth rate in earnings is pretty much possible. So, clearly it is a good story as well but the valuations are getting steep now because on a P/E basis it is now almost like 16-17 times FY18 although the numbers will look very pretty this year and next year given the deferred tax write backs and all. The valuations look steep but at the same time the story looks very much intact. Ekta: Has the story become even more firm for you after Dilli Raj decided to step down? What did you tell your clients, I am sure you got quite a few queries on that? A: We have no view on that but at the same time I would say that we have followed this company for more than five to six years from the time they went through the crisis and Dilli Raj has definitely done a lot in terms of getting it from where it was. So, definitely I would not say that this story has got firmer because Dilli Raj has left. I would say that on operational front I don’t see problems but definitely they have lost one of the guys who have been one of the key architects of where Bharat Financial is. Prashant: The view was that him out of the way is better, it is an overhang gone but you seem to believe otherwise because he has been there since the very beginning, he took over once Vikram Akula was out, so he has been there since that time so he knows the business inside out? A: Definitely. The key part was that when the stock was at Rs 60 and no one was looking at it, he and MR Rao, these were the two guys who were there in the market and were able to convince the investors that this is a business to invest in and they were known, sort of lenders also for this company and from there on these guys have been able to get it where it is. So, fundamentally I won’t think it is a great thing to lose someone like Dilli Raj. However, at the same time you are sentimentally from a market perspective the overhang is gone so that is positive from a stock point of view. However, if I am looking at from a longer term point of view, I would definitely think that Bharat Financial will have to find some substitute who can replace Dilli Raj in whatever he was doing. Ekta: With regards to maybe trying to get a bank licence in the future do you think that the chances are slimmer because we have had two high level exits that have taken place with Bharat Financial over the past few years and secondly would you be okay with it, they should just keep doing what they are doing well enough which is being an Micro Finance Institutions (MFI) and you would be comfortable with that? A: One thing which we have highlighted some three years back when everyone was bullish on the banking licence was that we were not bullish on anyone getting the banking licence given that all these companies are great niche businesses and getting the banking licence means that you have to lose what you are doing and get into the mainstream and do what every bank does and they are not the experts in that. However, the small finance banks is another proposition. So, with small finance bank, definitely it makes more sense for MFIs. I would think that in next three to four years because you can’t remain an MFI for 10 years from here and you keep growing like this. In next three to four years, I think the company will have to look for options in the banking side or something because that is where they will start hitting the ceiling in terms of growth if being only MFI.