Buy Bajaj Finance; target of Rs 10600: ICICI Direct

Bajaj Finance reported a strong set of numbers with PAT above estimates largely aided by strong traction in topline NII growth at 43% YoY to Rs 1283 crore was above our estimate of Rs 1165 crore. This was largely aided by strong growth in AUM at 39.5% YoY to Rs 49608 crore. Further, calculated margins stayed above 10% owing to strong traction of 47% YoY in the consumer finance book. Cost to income ratio dipped 300 bps QoQ to 41% Asset quality on 150 days overdue was steady as expected with GNPA ratio at 1.25% vs. 1.23% seen in Q4FY16. Even on a 120 days overdue and 90 days overdue basis the asset quality performance is healthy with GNPA ratio at 1.47% and 1.6%, respectively.

A strong performance in a weak economic scenario (healthy return ratios - RoA at 3%, RoE at 20% GNPA at 1.2%) led to higher investor interest in BFL & P/ABV multiple to expand from 1x to >4x since September 2013. We have tweaked our FY17E, FY18E earnings slightly higher. We expect PAT CAGR of 35% in FY16-18E to Rs 2344 crore as we factor in 32% CAGR in AUM & lower CI ratio. BFL’s premium valuations are expected to sustain on better earnings visibility. We maintain BUY and raise TP to Rs 10600 (Rs 8230 earlier) as we value it at 24x FY18E EPS (5.1x FY18E ABV). For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.