Bajaj Finance share price correction provides attractive entry point, says Emkay

Emkay Global's positive stance on Bajaj Finance shares is underpinned by three factors. Firstly, it believes that Bajaj Finance's journey over the last one & a half decades has been a hallmark of near flawless execution of its 3i strategy (Invention, Innovation and Imitation) amid a number of external turbulences, shocks and disruptions.

"Notwithstanding niggling issues in the past few years, Bajaj Finance has continued to deliver growth (AUM and Customer Franchise) and profitability (RoA/RoE) in line with or better than its 'Long Range Strategy' (LRS) and far superior than lending peers, despite reaching its current size and material exposure to mortgages," said Avinash Singh, Senior Research Analyst at Emkay Global in a note.

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Regarding recent issues and overhangs, the company has addressed the deficiencies in processes that led to the RBI ban on E-com/EMI cards; the Bajaj Housing Finance IPO is likely to come up within a year, and the recent Management reshuffle & hiring has granted clarity on Management succession and transition of MD Rajeev Jain, he added.

Bajaj Finance has proactively added new product offerings to its already wide product portfolio and the newer product lines are likely to eventually post ~6-7% consolidated AUM over the coming 5 years, and offset any pressure on consolidated yields resulting from the increasing mortgage in the AUM mix. 

At the consolidated level, Emkay Global expects Bajaj Finance to log AUM CAGR of 25% over FY24-27E, nearly doubling to ₹6.5 lakh crore, while noting PAT CAGR of 21.4% by FY27E, with RoA seeing a marginal dip due to rising mortgage in AUM mix.

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Bajaj Finance shares have materially underperformed the Nifty 50 over the last 2 years, amid RBI action on the company, anticipation around Management transition and succession, fear of entry of behemoths in consumer financing, and inclusion of Bajaj Housing Finance in the RBI's Upper Layer. 

"With resolutions for most of these issues likely within the next one year, the correction in Bajaj Finance share price provides an attractive entry point, given that the execution machine of the company is as effective as ever and that it is well on track to deliver its LRS targets," Singh said.

At 10:35 am, Bajaj Finance shares were trading 0.24% lower at ₹7,273.00 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 23 Apr 2024, 10:37 AM IST