IIFL's Views on Bajaj finance Ltd
Bajaj Finacne Ltd - BFL is well-positioned to deliver robust growth in assets and earnings after consolidation during FY08–10. We forecast 40% CAGR in assets for BFL during FY10- FY13ii, driven by foray into new lending segments, namely, business loans—secured and unsecured. We forecast 62% CAGR in earnings for the same period, driven by decline in cost/income ratio and credit costs.
Access to finance for small businesses and consumers remains constrained, as evidenced by declining share of bank finances to these segments. Untapped potential, decline in competitive intensity and investments by BFL in establishing key processes for origination and credit administration would enable it sustain strong growth momentum in assets.
Bajaj Finance Ltd (BFL) is well-poised to deliver 40% assets CAGR and 62% earnings CAGR during FY10-13ii, driven by a favourable lending environment, strategic shift in focus, and normalisation of credit costs. The stock has risen by 128% YTD. It has priced in the normalisation of growth, in our view, but not the benefits of a strategic shift in focus fully. The stock currently trades at FY12ii P/B of 1.9x. We initiate coverage on BFL with a BUY and target price of Rs1000
