Buy Bajaj Finance; target of Rs 8212: K.R.Choksey

K.R.Choksey's research report on Bajaj FinanceIn its seasonally subdued quarter, Bajaj Finance (BAF) missed our PAT expectations, but still reported a robust 36.4% Y-o-Y growth at INR 3150 mn. NII too stood a miss on estimates at INR 10.15 bn, however, grew healthy 37% Y-o-Y. Moreover, the company to the tune of INR 439 mn towards one stressed infra lending account and improved the coverage ratio to higher levels of 77%. While seasonality did impact the consumer durable portfolio in Q4, the LAP and self-employed home loans segments too stood sluggish due to complete transition of these portfolios from earlier “distributor driven business” model to “direct to customer” model. While overall business momentum remains steady coupled with structurally strong RoE profile and controlled asset quality continue to justify premium valuations, we maintain ACCUMULATE rating on the stock expecting capped upside given the steep valuations.

We reckon that the risky unsecured portfolio expansion, business growth saturation, steep valuations (the stock is trading at the higher end of its historical band chart) and most of the positives being priced in, we be;ieve the upside for BAF from hereon stands capped. We, therefore, maintain ACCUMULATE) rating on the stock, but tweak our target price to INR 8,212 (earlier INR 6,705), valuing the company at 3.9x P/ABV FY18E. At CMP the stock trades 4.3x FY17E P/ABV and 3.5x FY18E P/ABV.