Prabhudas Lilladher is bullish on Bajaj Finance has recommended buy rating on the stock with a target price of Rs 3000 in its research report dated May 20, 2020.
Prabhudas Lilladher's research report on Bajaj Finance
Front-loading of COVID-led provisions of Rs9bn lead to PAT miss to Rs 9.5bn (down 41%QoQ/19%YoY) for BAF. The 81-day quarter witnessed 5%QoQ growth in customer franchise, 1.4%QoQ/27%YoY growth in AUM translating into 3%QoQ/38%YoY increase in NII. Steady NII traction and lower opex (declined 5%QoQ) despite collection infra ramp-up aided healthy operating profit (up 8%QoQ/46%YoY). While inherent unsecured short tenure business stands susceptible to pandemic shocks, incremental asset quality deterioration should not exasperate as: (a) 68% of customers under morat have no bounce history (b) steady bounce rate between critical periods of Apr-May'20 (35-37%) (c)only 2 out of 13 portfolios are either yellow or red, rest green (d)sufficient pre-provision profitability. As BAF model undergoes litmus test with substantial drop in new customer additions, loss of business in discretionary portfolios (viz; lifestyle products, apparels, furniture, cards) and elevated slippages, we slightly trim our growth estimates to 12% vs earlier 15% for FY21. Given capital and liquidity sufficiency acting as natural shock absorbers, FY22 is expected to earnings revival led return uptick (RoEs: 21%/RoAs:3.7%) and AUM traction (24% YoY growth).
Reiterate BUY as stock stands in the value zone. Our price target stands at Rs3000 (earlier Rs 3582) as we assign book value multiple of 4.6x FY22E (earlier 5.1x).
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