ICICI Direct recommended hold rating on Bajaj Finance with a target price of Rs 3050 in its research report dated July 22, 2020.
ICICI Direct's research report on Bajaj Finance
The consolidated moratorium book has reduced to Rs 21,705 crore (or 15.7% of AUM) from Rs 38,599 crore (or 27% of AUM) as of April 30, 2020 owing to reduction in bounce rate (declining 3-4% monthly) coupled with better collection efficiency. Moratorium in auto finance segment stayed high at 50% from 70% in April. It decided to convert some of its existing customers with no overdue and good repayment track record from term loan to a flexi loan (old product) for a switch fee. It also has an added feature of only interest servicing for the first one to two years apart from digital repayment options. In Q1FY21, the company converted ~Rs 8,600 crore of term loans into flexi loans.
At 5.2x FY22E ABV, RoE moderating to ~15% and RoA under 3%, the stock looks fairly priced. Lower growth & higher uncertainty warrants being cautious in the near term. Therefore, we continue to maintain HOLD rating and revise our target price to Rs 3050, valuing the stock at ~4.7x FY22E ABV.
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