Hold Bajaj Finance; target of Rs 2950: Emkay Global Financial

Emkay Global Financial's report on Bajaj Finance

BAF reported a PAT of Rs9.65bn (-35.9% yoy, +0.3% qoq), which came in slightly lower than our estimate of Rs9.85bn, on healthy margins and lower opex. BAF made additional Covid-19-related provisions of Rs13.7bn, further front-loading the uncertainty on recoverability. Total contingent Covid-19-related provisions now stand at Rs33.9bn. Consolidated moratorium has reduced to ~8% of AUM (~15.7% in Q1FY21) on a reduction in bounce rates, coupled with better collection efficiency. However, overall trend in collection remains weak across products compared with pre-Covid levels. The company has restructured assets worth Rs2.5bn (Mortgages/Consumer) which may see further rise. On the growth momentum front, management is relatively more optimistic for H2FY21E. However, regaining the lost market share would be a time-consuming task, in our view. We also remain watchful of the performance of Flexi Loans (Rs430bn) which also include converted Flexi Loans of about Rs100bn as well.

Outlook

We keep our estimates intact and await further clarity on growth and asset-quality trends. We maintain Hold rating and EW stance in NBFC EAP with a TP of Rs2,950 (~3.5x P/B Mar’23E). Valuation multiple expansion is possible only once the company starts regaining lost market share, especially in its core B2B segment.