Bajaj Finance Shares Fall 9% After Bernstein Downgrades Stock
Shares of Bajaj Finance Ltd. fell today after Bernstein downgraded the non-bank lender citing challenges to its unsecured consumer finance model in an environment that’s been stalled by the coronavirus outbreak.
The brokerage, in a research report, downgraded the NBFC from ‘Outperform’ to ‘Underperform’, and cut its target price by 64 percent to Rs 1,740 per share.
Bajaj Finance’s shares declined nearly 9 percent on a day when the NSE Nifty 50 and Nifty Bank Index rose marginally by 0.22 percent and 1.81 percent, respectively.
“At this stage, it would be conservative to assume that first quarter of FY2021 would be a near complete economic freeze and a crawling recovery post that,” Bernstein said, adding that it expects only a marginal recovery in the second half of the next fiscal. “As things stand now, we estimate the loan growth to be 8 percent year-on-year for the FY2021 vs. 35 percent run rate.”
Bernstein also expects Bajaj Finance’s credit costs to rise by 100 basis points in the next fiscal to 2.7 percent. It also expects the non-bank lender’s small and medium enterprise loans (13 percent of its loan book) and consumer business-to-consumer loans (27 percent of total loans) to face risk of delayed collections. Within B2C consumer loans, self-employed personal loans could be vulnerable, it said.
Bernstein’s Other Predictions For Bajaj Finance:
- Expects FY21 estimated earnings per share to contract by 8 percent.
- Expects return on equity to compress to 15 percent in FY2021 vs expected 22 percent in FY2020 and recover slowly to 17 percent in FY2022.
- Has compressed valuation multiple to 15 times earnings (nearly 52 percent contraction from its five-year average of 28.5 times) given the growth shock, escalation of risk costs and expected slow recovery to its historical long-term growth profile.
Following the downgrade, as many as 21 analysts tracking Bajaj Finance have a ‘Buy’ rating on the stock, with seven ‘Hold’ and three ‘Sell’ ratings, according to Bloomberg.
The consensus target price is Rs 4,469.69 per share, implying an upside potential of 75 percent from the current market price.