Buy Bajaj Finance; target of Rs 8350: Motilal Oswal

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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Motilal Oswal's research report on Bajaj Finance

BAF’s 4QFY22 earnings were in line, with a reported PAT of INR24.2b, led by healthy core AUM growth of 26% YoY and a pristine asset quality (GS3/NS3 stood at 1.6%/0.7% and credit cost moderated by ~150bp, despite having to provide INR1b on a large commercial account). Key things to watch out for in FY23 include: a) evolution of its Payments landscape and traction therein, b) velocity on the already launched app and the envisaged new web platform, c) potential foray into the Credit Cards business from its own Balance Sheet, d) Two-Wheeler marketplace and diversification to other non-captive OEMs, and e) margin trajectory in the face of aggressive competition, leading to a pressure on NIM.

Outlook

We maintain our Buy rating with a TP of INR8,350/share (based on 8x FY24E P/BV). BAF delivered an in line performance, despite a 7% miss on our NII estimate. PAT grew 80% YoY and 14% QoQ to INR24.2b in 4QFY22.

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