Buy Bajaj Finance; target of Rs 6900: Motilal Oswal

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Motilal Oswal's research report on Bajaj Finance

Bajaj Finance (BAF)’s Annual Report shares a glimpse of the management’s two-pronged strategy implemented in FY21: a) conservatism and prudence and b) the acceleration of the business transformation plan. With the various steps taken during the pandemic, BAF is confident of achieving higher volumes, a leaner cost structure, and a strong digital platform offering superior services across the value chain. The focus throughout the year was on (a) capital management (Tier I of 25%+), (b) achieving abundant liquidity (12–13% of borrowings), (c) lowering opex (opex to assets down 70bp), (d) expanding collections and servicing capabilities (costs up 18% YoY), (e) strengthening underwriting, and (f) gaining a sharp perspective on risk mgmt. Furthermore, the management has made the best out of the crisis and accelerated the digitalization process across the board. We believe the near-term stress due to COVID would be transient in nature, and BAF has strong pillars in place to capitalize on recovery. ROEs are likely to be healthy at ~20% despite the pressure on earnings. Reiterate Buy.

Outlook

BAF’s return ratios have not only been consistent but are also the highest in our Coverage Universe (after that of gold financiers). Reiterate Buy, with revised TP of INR6,900 (7x BV 1HFY24).

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