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

Emkay Global Financial's report on Bajaj Finance

Bajaj Finance (BAF) has reported 0.5% de-growth in AUM sequentially (+1.3% yoy) to Rs1,373bn in Q2FY21. New loans stood at 3.6mn, down from 6.5mn last year but up from 1.7mn last quarter. Total customer base stood at ~44.1mn with fresh additions of 1.2mn customers against 0.5mn addition last quarter. BAF continues to maintain a high liquidity buffer of Rs223bn as of September 30, 2020, up from ~Rs206bn as of June 30, 2020. Management has also maintained that it will continue to aggressively provide for Covid-19 even in Q2. We believe that aggressive provisioning is also backed by a strong CAR of ~26.5%. The loan growth has taken a hit as management has turned risk-averse due to the regional lockdowns amid rising Covid-19 cases. However, our channel checks indicate that BAF was back to lending and disbursing in Sep’20. We will watch out for details on this front in Q2 results and management commentary.

Outlook

We await clarity on the asset quality after the completion of the moratorium. Management commentary on the future growth strategy also remains key monitorable from the results. We maintain Hold on the stock with a TP of Rs2,950, corresponding to ~3.5x P/B Sept’22E. Retain an EW stance in NBFC EAP.

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