Bajaj Finance Offers A Compelling Investment Opportunity, Says PhillipCapital

Bajaj Finance Ltd. makes for a compelling investment opportunity with adequate risk management and high capital buffers in the lending business, according to PhillipCapital.

By transitioning to a financial services and payments player in the medium term and entering new credit segments—such as microfinance, new car finance, flexi loans on QR for merchants, and tractor finance—the company is set to scale up over the medium term, it said in a report released on Wednesday.

The brokerage maintains a ‘buy' rating with a target price of Rs 10,000, implying an upside of about 35%.

Bajaj Finance can position itself as a payments and financial services company in the medium term based on the e-commerce product user base in the country, PhillipCapital said.

"Bajaj Finance apps and revamped web interface strategies will offer new growth vectors in an intensely competitive environment and high-velocity business and drive incremental customer acquisition through better engagement," the brokerage said.

Risk Diversifiers To Drive AUM Growth, Profit

Bajaj Finance is among the few non-banking financial companies that have diversified the risk on their balance sheet while continuing to see good growth and risk management, the brokerage said.

The bank's emergence into rural finance, SME finance, and auto finance has helped in reducing its dependence on the top 40 markets, reducing seasonality, maintaining a healthy pipeline for NTC customers, and diversifying its product mix, the report said. Favourable demographics and technology-led client mining will lead to the addition of nine to 10 million customers each year, according to the report.

The brokerage expects in-house loan sourcing, cross-selling opportunities to existing customers, and popular ticket-sized loans of Rs 4.5 million to Rs 5 million to act as key growth drivers for Bajaj Housing Finance Ltd. in the near-to-medium term.

Key risks for the bank include competition from fintechs and new-age NBFCs, competition from banks in salaried home loans, and senior management attrition to competitors, PhillipCapital said.

Shares of Bajaj Finance closed 0.6% up, as compared with a 0.38% rise in the benchmark NSE Nifty 50 on Wednesday. The relative strength index was 63.1.

Of the 35 analysts tracking the company, 26 maintain a 'buy' rating, four suggest a 'hold', and five recommend a 'sell', according to Bloomberg data. The average 12-month analyst price target implies an upside potential of 10.8%.