Bajaj Finance - Standing The Test Of Time; ICICI Securities Initiates Coverage With A Buy

ICICI Securities Report

We initiate coverage on Bajaj Finance Ltd. with a Buy rating and a target price of Rs 8,500, valuing standalone business at ~five times FY26E adjusted book and adding ~Rs 830 for Bajaj Housing. Our target multiple of ~five times for standalone business is premised on:

1. new customer addition of ~3.5 million per quarter (in-line with FY23-9M FY24 run rate) resulting in assets under management compound annual growth rate of 29% in FY24-FY26E;

2. steady net interest margins at 11.5%-12% in FY24-FY26E supported by strong parentage and ‘AAA’ credit rating, with other income generated through third-party products further supporting the top-line; and

3. likely credit costs at ~200 basis points with steady gross non-performing assets.

On balance, we expect return on asset trajectory of 4.5-5% in FY24-FY26E and return on equity of 19-20% during the same period.

Key risks

• Prolonged regulatory challenges with respect to consumer lending, ecommerce/EMI cards and co-branded cards may adversely impact its business and financial performance.

• In case of conversion to bank, the company’s profitability might be impacted whilst meeting CRR, SLR and PSL requirements.

• RBI has granted an extension until December 21 2024, while Bajaj had sought a longer extension for its credit card ties with RBL Bank Ltd. Hence, if the extension does not go through, then distribution fee income for RBL could see a sizeable decline.

• The company has grown rapidly in the past and its ability to sustain the growth rate and financial performance will be a key monitorable.  Inability to attract and retain relationships with the distribution channels and customers, impacting the overall growth targets of the company.

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