Bajaj Finance slips 3%, down 8% in 3 days on growth and valuation concerns

Shares of Bajaj Finance continued to reel under selling pressure for the third straight trading session. The stock dropped 3 per cent to Rs 6,860 on the BSE in Wednesday’s intra-day trade, falling as much as 8 per cent in past three days on growth concerns.

With the ongoing 3-day price correction, the stock of non-banking finance company (NBFC) has now corrected 14 per cent from its record high level of Rs 8,020 touched on October 10, 2021. The stock had hit a low of Rs 6,678 on November 29, 2021.

Earlier this week, the foreign brokerage firm CLSA initiated a ‘Sell’ rating on Bajaj Finance with a target price of Rs 6,000 per share. CLSA says the stock was likely to “undershoot expectations in the medium –term”. The report cited “a large base, decline in customer repeat purchase ratio and rising competitive intensity in core segments posing risks to its medium-term loan growth”. CLICK HERE FOR FULL REPORT

In past one month, Bajaj Finance has underperformed the market by falling 9 per cent, as compared to 4.6 per cent decline in the S&P BSE Sensex. In three months, it was down 7 per cent, as against a 1.4 per cent fall in the benchmark index. However, on a one-year time frame, Bajaj Finance has rallied 34 per cent when compared to a 25 per cent surge in the Sensex.

The domestic brokerage firms HDFC Securities and Nirmal Bang also have ‘Sell’ rating on Bajaj Finance with a target price of Rs 5,498 and Rs 6,914 per share, respectively.

“Bajaj Finance’s business transformation initiatives, which are likely to strengthen the medium-term growth prospects, have been deferred by 45 days due to the second wave led disruption. It remains an enviable franchise for its high-growth and profitability potential; however, the current steep valuation (8.5x Sep’23 ABVPS) leaves no margin for any disappointment on the execution front,” analysts at HDFC Securities had said post Q2 results in report dated October 27, 2021.

Despite the improving asset quality, management has conservatively increased management overlay from Rs 4.83 billion in Q1FY22 to Rs 8.32 billion in Q2FY22 as a prudent measure against the impact of any possible 3rd Covid wave. In line with the asset quality improvement seen in Q2FY22, faster economic normalization and improving collections across products, we have reduced our NPA estimates and brought them in line with the management’s guidance, analysts at Nirmal Bang Equities had said.

“Launch of digital platforms, which is aimed at a seamless customer shopping experience, is expected to yield significant benefits. We have increased our PAT estimates by 5 per cent for FY23-24E on back of higher AUM growth. Despite the strong performance and upward revision in earnings, we maintain SELL on the stock with a TP of Rs 6,914 (7.0 1HFY24E ABVPS), primarily due to high valuations,” the brokerage firm said in results update.

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