Buy Bajaj Finance; target of Rs 7865: YES Securities

YES Securities' research report on Bajaj Finance

BAF not only delivered 4-7% beat on NII/PPOP/PAT, but its performance and commentary also doused emerging concerns pertaining to growth/competition in B2B business, slowdown in housing portfolio, growth trajectory in new loan bookings/cross-sell, and the impact of inevitable NIM moderation on RoA. Factors that drove earnings beat in Q4 FY23 were resilient NIM (supported by lending rate hikes taken so far) and restrained opex growth (manifesting early benefits of digital platforms). Management remains reasonably confident about strong customer additions, loan bookings, AUM growth, cost metric improvement and benign credit cost in FY24. We have marginally upped our AUM growth forecast and pruned credit cost estimates which has led to FY24/25 earnings being upgraded by 4-5%. Addition of new product lines like Gold Loans, Auto loans, CV finance, Tractor loans, Microfinance and Emerging Corporate loans would support long-term growth and profitability of the franchise.

Outlook

BAF currently trades near its seven-year average 1-yr rolling fwd. P/ABV of 5.6x. With expectations of 25% AUM CAGR and average 4.7%/23.7% RoA/RoE delivery over FY23-25, we reiterate BUY on the stock with an upgraded 12m PT of Rs7,865.