Bajaj Finance share price: Motilal Oswal says BUY; target price Rs 5,865
Motilal Oswal says that 4QFY21 was a healthy quarter for Bajaj Finance. Disbursements have exceeded 90% of YoY levels across most segments. The initial asset quality performance of incremental disbursements is in line with or marginally better than pre-COVID levels. This bodes well for asset quality in the medium term
Motilal Oswal says that 4QFY21 was a healthy quarter for Bajaj Finance. Disbursements have exceeded 90% of YoY levels across most segments. The initial asset quality performance of incremental disbursements is in line with or marginally better than pre-COVID levels. This bodes well for asset quality in the medium term. In the near term, Motilal Oswal do not foresee any major asset quality disruption, unless the impact of the second wave is worse than expected.
Motilal Oswal highlights that Margins are likely to see a sharp improvement in FY22 on account of:
a) lower cost of funds
b) a reduction in liquidity
c) a favorable base due to interest reversals
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Motilal Oswal largely keeps their estimates unchanged and expects Bajaj Finance to deliver 4.8% RoA / 22% RoE over the medium term. Given the positive outlook in this counter, Motilal Oswal upgrades Bajaj Finance from Neutral rating to BUY, with target price of Rs 5,865 per share.
Bajaj Finance has largely maintained liquidity on the books (at 12.5% of borrowings) – contrary to the management’s guidance for a further reduction in the coming months to a run-rate of 7–8%. Spreads (calculated) improved 23bp QoQ to 11.6%, driven by stable yields and 72bp decline in cost of funds to 6.9%. Interest reversals during the quarter stood at Rs 2.98 bn v/s Rs 4.5 bn QoQ. During the quarter, the share of bank borrowings declined 300bp to 32%, offset by 250bp share gains in the money markets (44%). While the total deposit book grew 19% YoY to Rs 263 bn, the share of retail increased to 77%, from 67%, over this period, says Motilal Oswal.
Bajaj Finance said that it would see a meaningful decline in the Cost to Income ratio post the launch of the business transformation process. New loan originations, barring auto finance, are back at pre-COVID levels. The Wallet Loans business (paused) and Retail EMI business have moderated. The capital adequacy ratio stood at 28.34%, of which Tier-1 capital was 25.10%. The Housing Finance arm’s AUM grew 19% YoY to Rs 388.7 bn and reported PAT stood at Rs 4.5 bn (+8% YoY). Despite significant disruptions, Bajaj Finance remains open for business across geographies, in line with local administration advisories. In the last 7–10 days, the company has continued to originate 50–55% of daily volumes in the B2B business, 80–85% in the B2C and SME businesses, and 40–50% in Mortgages, explains Motilal Oswal.
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