Stock To Buy: Company That Reported 80% Net Profit Growth, Solid Potential Ahead

In line with expectations, Bajaj Finance reported a blockbuster set of quarterly numbers and is in line to chalk out good growth rates in the future.

Buy for an upside of 20%

Broking firm, Motilal Oswal has recommended buying the stock of Bajaj Finance with a price target of Rs 8150 on the stock. The shares were trading at around Rs 6880 on April 27, implying an upside potential of nearly 20% on the stock.

"Bajaj Finance's 4QFY22 earnings were in line, with a reported PAT of Rs 24.2 billion, led by healthy core AUM growth of 26% YoY and a pristine asset quality (GS3/NS3 stood at 1.6%/0.7% and credit cost moderated by 150bp, despite having to provide Rs 1 billion on a large commercial account)," the brokerage has said.

4 things to watch out for

According to Motilal Oswal Institutional Equities key things to watch out for in FY23 would include the evolution of its payments landscape and traction therein. Apart from this the velocity on the already launched app and the envisaged new web platform should also be watched. "Potential foray into the Credit Cards business from its own Balance Sheet, two Wheeler marketplace and diversification to other non-captive OEMs, and margin trajectory in the face of aggressive competition, leading to a pressure on NIM. We maintain our Buy rating with a target price of Rs 8,350 per share (based on 8x FY24E P/BV)," the brokerage has said.

Net interest margins likely to compress

According to Motilal Oswal, the net interest margins are likely to compress in FY23, driven by a pressure on yields, absence of large IPO financing (under new RBI guidelines), and expectations of an increase in borrowing cost.

"Part of the net interest margin compression in 4QFY22 was mitigated by a decline in surplus liquidity on its Balance Sheet.

NPAs see an improvement

GNPA/NNPA ratio improved by 13bp/10bp QoQ to 1.6%/0.68%. OTR book classified under Stage 2 stood at Rs 14.53 billion (36bp of assets under management). Bajaj Finance carried ECL provision of Rs 1.4 billion (20%) in this book. Credit costs included provisions of Rs 1 billion on a large commercial account (gross exposure of Rs 3.83 billion), which slipped into NPA.

According to Motilal Oswal. the OPEX-to-NII ratio stood 35% in 4QFY22. "The ratio will remain elevated in FY23 and FY24 as BAF invests in building capabilities for its Payments ecosystem and associated sales promotion/customer acquisition expenses (in the form of rewards/cashbacks)," the brokerage has said.

Buy stocks on declines

We at goodreturns.in have been recommending investors to only buy stocks on declines and avoid lumpsum. Only investors with a long-term perspective should buy stocks, as markets have been more volatile in the short-term.

Disclaimer

The above stock is picked from the brokerage report of Motilal Oswal Institutional Equities. Investing in equities poses a risk of financial losses and investors should understand the nature of the risk. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.