Buy Bajaj Finance; target of Rs 7500: Sharekhan

Sharekhan is bullish on Bajaj Finance has recommended buy rating on the stock with a target price of Rs 7500 in its research report dated January 27, 2023.

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January 31, 2023 / 16:12 IST

26 Aug, 2025 12:21

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Sharekhan's research report on Bajaj Finance

BAF’s reported solid earnings growth of 40% y-o-y in Q3FY2023, driven by 24% y-o-y growth in operating profit and a 20% y-o-y decline in provisions. Customer franchise expanded to 66 mn (up 19% y-o-y) with cross-sell franchise at 38.6 mn (up 23% y-o-y). NIM (calculated as a percentage of average AUM) was stable q-o-q at 10.5% despite cost of funds increasing by 23 bps q-o-q. Opex growth has started to moderate, which is expected to aid operating leverage going forward. Opex to average AUM stands at 4.6% vs. 4.8% q-o-q. Asset quality was remarkable, as GS3 ratio sequentially declined to 1.14% (vs. 1.17% in Q2FY2023) and GS2 ratio (including OTR) dipped to 1.2% (vs. 1.4% in Q2FY2023). AUM growth is moderating to 25-30% vs. earlier at 35-40% owing to a higher base and competitive intensity, which continues to remain elevated across the portfolio that is leading to some market share loss in the near term. This has led to de-rating in the valuation multiples. However, we believe the impact of digital transformation is yet to be visible fully, which should uplift AUM growth gradually.

Outlook

The company continues to focus on protecting the profit pool instead of merely chasing growth. Thus, BAF is poised to deliver sector-leading ROA/ROE of 4.7%/22% over FY2022-FY2025E. At the CMP, the stock trades at 6.5x/5.3x/4.3x its FY2023E/FY2024E/FY2025E BV estimates. We are confident about the company’s strong earnings growth and longevity of the franchise, thus we reiterate Buy on BAF with a revised PT of Rs. 7,500, tweaking the multiple lower due to moderation in AUM growth.

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