Bajaj Finance Ltd. plans to raise capital will help improve its book value and growth outlook on profit and assets under management, according to HSBC Global Research.
The company's board is scheduled to meet on Oct. 5 to consider raising equity capital.
HSBC estimates a capital infusion of approximately 12–15% of Q1 FY24 net worth, ranging between Rs 7,000 and Rs 8,000 crore. This implies a dilution of c.1.6–1.7% in the number of shares, the brokerage said.
“Given a 10% upgrade in book value per share, the additional upgrade in target multiples is for the higher growth outlook in AUM and profits. Our profit after tax CAGR estimate now stands at 30%, versus 25% earlier," the brokerage said in a Sept. 25 note. They have also raised the AUM growth estimate from 28% to 32% CAGR over FY23–26e.
HSBC anticipates higher net interest margins and disbursement-led fees, which will lead to higher operating expenses.
The brokerage raised the stock's target by 15% to Rs 9,500, compared to Rs 8,420 earlier, implying an upside of 21.5%
Although Bajaj Finance does not require capital at a high 23% tier-1 ratio, it is proactive in securing capital to scale up new businesses (vehicle loans, tractor, microfinance, gold etc.) over FY25-26e, according to the brokerage.
“The capital will also come in handy if the risk weights on unsecured personal loans are raised or if any acquisition is on hand,” HSBC said.
HSBC estimates a 10% increase in book value per share and a 250 basis point increase in the tier-1 ratio, which stood at 23% last quarter. The tier-1 capital ratio is a measure of a financial institution's strength and stability. It represents the proportion of a bank's core capital (the most stable and reliable form of capital) to its total risk-weighted assets.
Slowdown in the growth environment, increase in repo rate, inability to keep operating expenses or asset quality, and conversion into a bank are some key risks, according to HSBC.
Shares of Bajaj Finance rose 0.82% before paring gains to trade 0.26% higher as of 11:36 a.m., compared to a 0.05% advance in the NSE Nifty 50.
Of the 35 analysts tracking the company, 26 maintain a 'buy' rating, four recommend a ‘hold', and five suggest a ‘sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 6.4%.
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