Bajaj Finance shares may rise another 24% based on these three factors, says Emkay

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of Bajaj Finance Ltd. gained nearly a percent on Wednesday after brokerage firm Emkay Global has initiated coverage on the stock with a ‘Buy’ recommendation. Its price target of ₹9,000 implies a potential upside of 24% from the stock’s closing levels on Tuesday.

Bajaj Finance shares have tumbled nearly a percent on a year-to-date basis. Over the last 12 months, the stock has risen 22%. The stock had made a 52-week high of ₹8,190 last year.

Bajaj Finance shares have materially underperformed the benchmark index Nifty 50 over the last two years, amid the Reserve Bank of India (RBI) action on the company, anticipation around management transition and succession, fear of entry of behemoths in consumer financing, and inclusion of Bajaj Housing Finance in the RBI’s upper layer, Emkay noted.

Further, the brokerage said that the recent correction in Bajaj Finance’s valuations provides an attractive entry point for investors.

“With resolutions for most of these issues likely within the next one year, the correction in Bajaj Finance’s shares provides an attractive entry point, given that the execution machine of the company is as effective as ever and that it is well on track to deliver its ‘Long Range Strategy’ targets (i.e. superior growth and profitability with regard to financial services),” it said.

According to Emkay, its positive stance on the stock is underpinned by three factors—

i) Flawless execution of strategic plans being Bajaj Finance’s biggest strength; its execution capabilities are as strong as ever.

ii) Near-term challenges and concerns — such as RBI actions on EMI and E-com cards, Management succession and transition plans, and listing of the housing subsidiary — have already been identified, and a resolution for each is likely within the next one year.

iii) Continuing with its immaculate 3i execution strategy (Invent, Innovate and Imitate), the company is well poised to deliver consolidated asset under management (AUM) CAGR of 25% and consolidated profit after tax (PAT) CAGR of 21.4%, over FY24 to FY27 estimates.

Key risks, as per the brokerage, include new regulatory actions or prolonged duration of existing regulatory actions; transition to a bank structure; extreme increase in competitive intensity in key segments.

Out of the 38 analysts that have coverage on Bajaj Finance, 31 of them have a ‘Buy’ recommendation, four have a ‘Hold’ call while three have a ‘Sell’ rating.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow