Most analysts raised their price targets for Bajaj Finance Ltd. on hopes of a recovery in earnings in the next fiscal and lower credit costs.
That’s despite a drop in income and stressed assets inching higher in the third quarter. The consumer finance-focused lender reported a 29% year-on-year fall in net profit to Rs 1,146 crore in the October-December period. Net interest income declined by 5%.
The company’s pro-forma gross non-performing asset ratio would have been at 2.86% compared with 1.34% in the quarter ended September, had the Supreme Court’s freeze in interest-on-interest case not been there. Because it didn’t classify any account as NPA since Aug. 31, the gross NPA ratio came at 0.55% compared with 1.03% as on Sept. 30, 2020.
Loan loss provisions rose 63% over the year earlier, while it also provided one-time restructuring to loans worth Rs 2,040 crore under the Reserve Bank of India’s circular on Aug. 6.
Still, analysts said Bajaj Finance has one of the strongest balance sheets in the sector, as they maintained their bullish investment recommendations. They, however, are cautious over possible stress in its flexi loan book.
Shares of Bajaj Finance gained as much as 3.75% to Rs 5,168. The stock is up for the third straight day. Of the 32 analysts tracking the company, 16 have a ‘buy’ rating, while eight each suggest a ‘hold’ and a ‘sell’. The stock now trades 10.1% higher than its 12-month Bloomberg consensus price target of Rs 4,601.
Here’s what analysts have to say about Bajaj Finance’s Q3 results...
Bernstein
- Upgrades to ‘outperform from ‘market-perform’; raises price target to Rs 7,240 apiece from Rs 3,300.
- Looks set to come back to pre-pandemic growth trajectory in FY22.
- Fintech initiatives position it as an omnichannel player with an established cross-sell customer base.
- The market has shaken off the credit concerns.
- Expects EPS growth to spike 60% in FY22 on a low base and stabilise to about 35% year-on-year after that.
Morgan Stanley
- Maintains ‘overweight’ rating, with a price target of Rs 5,625 apiece.
- Expects benefit of lower liquidity buffer, liability repricing and normalisation of interest income to be reflected in FY22.
- Raises near-term cost assumptions but assumes moderation in the beginning of H2 FY22.
- Cuts EPS forecasts by nearly 9% for FY21 and 2% for FY22.
- Expects sharp earnings recovery in FY22 with more than 20% RoE.
- Stock may correct and/or consolidate in the near term but appears on a strong footing for FY22.
- Sees upside risk from bad loan recoveries and business transformation.
Haitong
- Maintains ‘outperform’ rating; hikes price target to Rs 5,500 from Rs 3,700.
- AUM growth should return to pre-Covid level from Q4 FY21.
- Has built a sufficiently strong buffer to overcome any credit losses that may occur over the next few quarters.
- Raises FY21-23 EPS estimates by 5%, 7% and 10% ,respectively.
- Key risks are spillover of higher credit costs owing to weak collection efficiency.
JM Financial
- Maintains ‘buy’ rating; raises price target to Rs 6,050 apiece from Rs 6,000.
- Well-positioned to navigate challenging times given the superior business model and strong profitability focus.
- Strong digital footprint with a marketplace approach to capitalise on Finserv group synergies.
- Expects 28% AUM CAGR over FY21-23 with healthy RoEs of 21-22% in FY22-23.
- With lifetime loss provisions for Covid-19 over, credit costs to reduce to 150-170 basis points.
Motilal Oswal
- Maintains ‘neutral’ rating, with a price target of Rs 5,000 apiece.
- Remains neutral as valuations are rich.
- Expects 20-25% year-on-year AUM growth in FY22 and beyond.
- Cuts FY22 credit cost estimate by 50 basis points to 1.8%.
- Earnings likely to rebound in FY22 with strong economic recovery, cutting of flab from opex and up-fronting of asset quality-related pain.
- Stressed book unlikely to witness any meaningful deterioration
- Raises FY22 EPS estimates by 4% to factor in better margins and lower credit costs.
Emkay
- Maintains ‘hold’ rating, hikes price target to Rs 5,200 apiece from Rs 2,950.
- New initiatives indicate a journey towards transformation.
- Attaining saturation in customer additions and hence the move is intended to increase wallet share from the same customers.
- Raises FY21, FY22, FY23 EPS estimates by 17%, 15% and 8%, and realign risk-free and terminal growth rates.
- Will keep an eye on possible stress in the flexi loan book, RBI’s regulatory norms for NBFCs and transformation of business.
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