JM Financial has recommended Bajaj Finance as one of its top Diwali stock picks with a target price of ₹8,552, implying an upside potential of 18.6% over the next 6-12 months. Bajaj Finance, one of India’s largest diversified NBFCs, is well-positioned to benefit from consistent asset growth, superior margins, and capital adequacy.
Key Investment Rationales
- Strong AUM Growth: Bajaj Finance’s AUM growth has remained healthy at over 25% year-on-year. Despite a slight moderation in growth in Q1 FY25 due to a shift from unsecured to secured loans following RBI instructions, the company is expected to maintain its strong performance.
- Healthy Margins: Margins have remained strong at over 12%, with Bajaj Finance’s diversified funding base (48% of liabilities are bank-based) expected to provide stability. NIMs are anticipated to remain steady going forward.
- Asset Quality: Bajaj Finance has consistently maintained one of the best asset-quality metrics in the industry, with GNPA ratios below 1.5%. The management expects provisioning costs to improve in the second half of FY25 compared to Q1 FY25, which was affected by lower collection efficiency due to elections and heatwaves across India.
- IPO Boost: Bajaj Finance’s housing finance division recently conducted an IPO, which has further boosted the company’s capital adequacy, positioning it for growth in the near term.
Financial Summary (FY21A-FY24E):
- Net Profit: ₹11,508 crore (FY23A) to ₹14,451 crore (FY24E)
- Assets (YoY growth): 30% (FY23A) to 31% (FY24E)
- EPS: ₹190.4 (FY23A) to ₹234 (FY24E)
- ROA: 4.7% (FY23A) to 4.4% (FY24E)
- ROE: 23.5% (FY23A) to 22% (FY24E)
- Price-to-Earnings (P/E): 37x (FY23A) to 30x (FY24E)
Key Risks
- Higher-than-expected Slippages and Credit Costs: Any rise in slippages or credit costs could negatively impact Bajaj Finance’s profitability.
- Lower AUM Growth: If AUM growth fails to meet expectations, it could slow down the company’s financial performance.
Disclaimer: Investments in the stock market are subject to market risks. The views and recommendations provided in this article are based on analysis from JM Financial and do not constitute investment advice. Investors are advised to perform their own research and consult with financial advisors before making any investment decisions. Past performance is not indicative of future results, and the author and publication are not responsible for any losses incurred based on this information. Please read all scheme-related documents carefully before investing.
