Buy Bajaj Finance; target of Rs 5000: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on Bajaj Finance

Meeting expectations across all key parameters barring elevated provisions for one key brokerage account, BAF continues to maintain robust earnings trajectory (PAT at Rs16.1bn grew 52%YoY/7%QoQ). NII at Rs45.2bn (PLe: Rs45.1bn) grew strong 41% YoY exceeding AUM traction of 35%YoY/7%QoQ for Q2FY20. We believe sustenance of stronger top-line is a result of BAF's customer franchise strength that is setting new normal in terms of higher customer addition per year at 8mn with total franchise expected to climb to 44mn by FY20 (40mn in Q3FY20). Better NII and operating leverage aided PPoP expansion of 44%YoY/15%QoQ to Rs30bn (PLe:Rs29.9bn). While the Co. has guided for higher credit costs at 170-180bps, we derive greater comfort in BAF's balance sheet resilience emanating predominantly from (a) maintenance of 68-70% of incremental business acquisition from existing/ seasoned customer since past 9months now (b) risk averse BHFL portfolio with RoEs restricted to 13-15%, RoA 1.4% (c) aggressive provision & stable write-off policy in-line with customer behavior mapping on ECL methodology. With structural story intact, BAF's demonstration of capabilities on quality asset and customer acquisition backed by benefits from lower tax rates and capital sufficiency (no dilution over next 3years) prompt us to upgrade our EPS estimates over FY20-22E. Resultantly, BAF remains poised to deliver 23.0%ROEs/4.3% RoAs by FY22E.

Outlook

Such a robust performance coming in the tough periods reinforces our confidence in the business further prompting us to upgrade the price target to Rs5,000 (earlier Rs4,668) valuing the Co. at 6.3x PABV Sep'21E. With BAF currently trading at fwd. multiple of mere ~5x, we believe a new innings has begun. REITERATE BUY.

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