Bajaj Finance had a good run in the markets on Tuesday with the stock touching 52-week high, both on the BSE and the National Stock Exchange (NSE). The rally was on the back of the company’s Q1 FY24 pre-quarter disclosure on Monday.

According to the annual report filed in the exchanges, the company reported its highest-ever customer acquisition — about 3.8 million — and new loans booked at about 9.9 million during the April-June quarter of FY24. Following this, most brokerages have also revised the price target of Bajaj Finance higher.

The business update demonstrates the aggressive growth approach and deep penetration of the company, say analysts. Global investment advisory firms such as Morgan Stanley, Citi, CLSA and BofA maintained their bullish stance with a target price ranging from ₹8,700 to ₹9,250.

The positive news egged the stock to close at ₹7,861.40, up 7.17 per cent from Monday’s close, on the BSE. During the day, it touched its 52-week high of ₹7,917. Similarly, on the NSE, the stock clocked its 52-week high during the day at ₹7,920, before closing at ₹7,868, up 7.3 per cent.

Business update

The company’s overall customer franchise has reached about 72.98 million as of June 30; “The growth in new customer addition has significantly picked up over the past three quarters,” says Rajiv Mehta, Lead — NBFC and SFB Analyst, Yes Securities.

Besides, the consistency in customer additions reflects improving reach across geographies “as we have been observing demand saturating in most metro and urban markets. It also resolves one of the major concerns raised over Bajaj Finance’s ability to acquire customers amid stiff competition and a higher base,” says an InCred Equities report, adding that the momentum in customer addition is reflected in business AUM growth (at ₹2.7-lakh crore; +32.6 per cent y-o-y, +9.3 per cent q-o-q) “which we believe is spread across lending segments”. Interestingly, the company saw a 25 per cent growth in business AUM in FY23.

The step-up in velocity of loan bookings and new customer addition is “reflective of sourcing and cross-sell benefits emanating from the recently launched app/web consumer platforms,” adds Mehta.

Way forward

CLSA, which sees Bajaj Finance in a sweet spot, says: “We lift our EPS estimates 5-6 per cent, and on revised estimates, the stock trades at a 25x PE (FY25) versus a 30x PE (two-year forward) pre-Covid and a 35x+ PE during its peak in late-2021. We upgrade our recommendation from ‘Outperform’ to ‘Buy’ and lift our target price from ₹6,600 to ₹9,000 (31x FY25 PE).”

Bajaj Finance is “gradually and granularly switching from being a mass-affluent to a mass-enabler franchise with a deep reach and diversified offering,” says the InCred Equities report, adding that its management, like that of HDFC Bank, is consistently focusing on increasing the physical presence, especially in semi-urban and rural India. “BAF (organically and without being a bank) intends a customer franchise of about 120 million (22 per cent CAGR) with 2.5 per cent of India’s credit market share and a RoE of +20 per cent by FY27F.”

AUM growth acceleration with improving acquisition/ cross-sell metrics can drive valuation re-rating from current long-term mean, says Mehta. “The stock trades at 5.8x PBV and 26x PE on FY25 estimates.”

Related Topics