Bajaj Finance rises 2% in weak market; BNP Paribas sees up to 35% upside

Shares of Bajaj Finance traded higher by 2.5 per cent at Rs 6,665 on the BSE in Tuesday's intra-day trade on positive growth prospects.

Brokerage firm BNP Paribas India initiated coverage on the stock with outperform rating and a target price of Rs 9,040 (5x FY26E P/BVPS) and marks it as a preferred BFSI pick. In the past three days, the stock rallied nearly 4 per cent. In comparison, the S&P BSE Sensex was down 0.9 per cent at 72,056 at 03:01 pm.

Thus far in the calendar year 2024, Bajaj Finance has underperformed the market by falling 9 per cent, as compared to 0.25 per cent decline in the benchmark index. It had corrected 19 per cent from its 52-week high of Rs 8,190 touched on October 6, 2023.

Bajaj Finance is India's largest non-banking finance company (NBFC) with primarily a retail/MSME (micro, small and medium sized enterprises) product suite focussed on mass affluent and above demographics, built on a uniquely successful cross-sell/upsell model.

Riding on an increasingly potent omni-channel presence, analyst at BNP Paribas India expect loan/EPS CAGR (FY23-26E) of 30 per cent/26 per cent while maintaining RoEs at 22-23 per cent. Asset strategy will remain key, the brokerage firm said.

High loan growth ensures that Bajaj Finance could potentially hit its internal dilution threshold leverage by FY26. The brokerage firm said its analysis suggests that a 3 per cent/5 per cent dilution is potentially a 15 per cent/25 per cent boost to BVPS and ensures that its current trading multiple of 4.4x FY25E P/B is rather attractive in lieu of the accelerated compounding. Cyclical asset risks remain the key monitorable, analysts said.

Analyst at KRChoksey Shares and Securities is also positive about Bajaj Finance's growth prospects, considering its strong parentage, industry-leading business growth, diversified asset and liability mix, prudent risk management, and market leadership. The brokerage firm has factored in the NII/ Operating profit/ PAT to grow at a CAGR of 28.6 per cent/27.9 per cent/27.5 per cent over FY23–26E, driven by a strong business trajectory and operating leverage.

Bajaj Finance is expected to reap higher growth from its new product lines like auto loans, microfinance segments, etc. NIMs are expected to see continued pressure led by the increasing cost of borrowings, which is expected to be partially offset by higher funding rates and restructuring of the asset mix.

The operating leverage has been playing out well for the NBFC, which will also aid in mitigating the impact of NIMs on the overall operating profits. “We remain cautious about the quality of the assets given the uncertainty and risky unsecured portfolio. BAF has also toggled within senior management with new additions to the positions and responsibilities to build a mature organization,” analyst said in Q3 result update.

Bajaj Finance is a subsidiary of Bajaj Finserv. It is a deposit-taking Non-Banking Financial Company (NBFC-D) registered with the Reserve Bank of India (RBI) and is classified as a NBFC-Investment and Credit Company (NBFC-ICC).

Bajaj Finance is engaged in the business of lending and acceptance of deposits. The Company has a diversified lending portfolio across retail, SMEs (small and medium sized enterprises), and commercial customers with significant presence in both urban and rural India. It accepts public and corporate deposits and offers a variety of financial services products to its customers.