Bajaj Finance hits new high, surges 10% in one week

Thus far in the calendar year 2019, Bajaj Finance has outperformed the market by surging 54 per cent, as compared to an eight per cent gain in the Sensex.

Shares of Bajaj Finance hit a new high of Rs 4,084, up 2 per cent on the BSE on Friday, gaining 10 per cent during the week after the government announced a reduction in the corporate tax rate. The stock of non-banking finance company (NBFC) is the top gainer among the S&P BSE Sensex. The benchmark index is up 2.3 per cent thus far in the week.

Analysts expect tax cut-led earnings boost to NBFCs will provide cushion against a decline in growth. Improvement in corporate earnings and increased manufacturing capex, they believe, will further add banking sectors’ business potential, they said.

With a 10 per cent rally this week, Bajaj Finance has outperformed the market  thus far in the current calendar year 2019 (CY19) by surging 54 per cent, as compared to an eight per cent gain in the Sensex.

In the past seven consecutive calendar years, the stock has outpaced the market and given positive returns to its investors. Except, CY13 (up 20 per cent) and CY16 (up 40 per cent), Bajaj Finance have posted an over 50 per cent returns. In CY12, CY14 and CY17, the stock had given an over 100 per cent returns to its shareholders.

JP Morgan has ‘overweight’ rating on Bajaj Finance as the brokerage firm believes the company has the capacity to sustain 25%+ loan growth over the next three to five years, despite the high base. Bajaj Finance has a high-growth model with multiple growth drivers and a strong management and is resilient to the near-term cyclical slowdown, it added. The stock, meanwhile, is trading above the brokerage firm's March 2020 target price of Rs 3,800 per share.

Analysts at KR Choksey Shares and Securities expect Bajaj Finance to continue on its high double digit growth trajectory and expect NII/PAT growth to average +28%YoY/+24%YoY in FY20E/FY21E.

Asset yields should remain elevated due to its focus on short term retail credit while pressure of borrowings should translate into as light spread contraction (average 20-30bps down in FY20/21E). We see room for further improvement in cost structure as business attains larger scale and BFL starts to derive benefits from its digital initiatives, the brokerage firm said in a result update.