NEW DELHI: This multibagger stock delivered a whopping 23,000 per cent return in a decade, doubling investor money five times in last 10 years.
Only once did the scrip disappoint investors: it fell 15 per cent for the year 2011. The stock is Bajaj FinanceNSE -2.13 %, India’s largest NBFC by market capitalisation in the consumer finance space.
In last one week, the stock has declined 10 per cent to Rs 3,440 level from Rs 3,740 amid slowdown worries, something unheard of in Indian NBFCs’ consumer financing business, which expanded 38 per cent during FY11-FY19.
MD Sanjiv Bajaj earlier this week said this would probably be the first time when television sales were lower YoY despite the ongoing Cricket World Cup.
“Otherwise we have seen it reach peak whenever there is a big season going on, like Cricket World Cup. That is a signal. On SME and rural lending side, there is a slowdown. This has nothing to do with NBFCs’ inability to lend. A slowdown is apparent,” he said in an interview.
‘Hold’ ratings on the stock have increased over the past one month. Analysts say the stock has attained rich valuations, and one can wait for some correction before accumulating it with a long-term view.
Bajaj’s projections did not go down well with investors, and the scrip fell 8 per cent on Monday itself. The NBFC later released data, suggesting a strong 41 per cent YoY (11.3 per cent QoQ) growth in asset under management (AUM) in June quarter to Rs 1.29 lakh crore, easing investor concerns. But the stock has not really looked up.
“We note that among the various products offered by the company, only a few may have witnessed slowdown. Moreover, we expect the high-ticket housing portfolio to have grown strongly with tailwinds from weakening competitive intensity,” Motilal OswalNSE -0.28 %Securities later said in a research note on the company.
Bajaj Finance said it acquired 2.5 million new customers in June quarter, which was higher than 2.1 million it had achieved in the year-ago period. The first and third quarters are usually strong for the company in terms of customer acquisition.
Motilal Oswal Securities has a ‘neutral’ rating on the stock with a price target of Rs 2,900, a steep 15 per cent lower than the prevailing price of Rs 3,400. This is even as the brokerage expects the NBFC to post 40 per cent-plus profit growth for June quarter.
Morgan Stanley has a target of Rs 2950 on the stock with ‘equalweight’ rating.
Analysts noted that the number of consumer durable (CD) loans for the NBFC tripled to 12.7 million in FY16-FY19. Credit outreach relationships at consumer durables stores doubled in urban locations and expanded 5 times in the rural belt, brokerage BoBCAPS said in a note.
The company has clearly focused on volumes over value to expand its consumer durables and digital products books. In the case of auto loans, two-wheeler and 3-wheeler financing by Bajaj Finance reduced to 7 per cent of AUM in FY19 from 15 per cent in FY14, it noted.
“Bajaj Finance currently trades at rich valuations. We understand that its aggressive growth should require a capital infusion over the next 12-24 months, driving valuations down. We factor in equity dilution of Rs 10,000 crore in FY21E to manage AUM CAGR of 38 per cent over FY19-21E,” said Emkay GlobalNSE -0.64 %.
The brokerage also sees some margin compressions over the next two years to 8.4 per cent from 9.3 per cent due to expansion of its low-yielding housing book.
“We see this as the management’s positive intent to diversify risks and manage them better,” it said, adding that recent discussions over HDB Financial’s IPO in the market at super-normal premium should support BAF’s valuations.
Sudip Bandyopadhyay of Inditrade Capital said while there have been concerns over demand slowdown, fundamentally if somebody is looking at long term, the quality of Bajaj Finance earnings is fabulous. “Investors can buy the stock at current levels or take the opportunity of some correction, which may happen post earnings announcement,” he said.
Dipen Sheth of HDFC Securities said Bajaj Finance ticks all the boxes just like TCSNSE 0.24 %. “There is nothing to my mind which suggests that a little bit of caution reported by Bajaj should be taken as a five-year commentary.”
“The business will go through ups and downs, but look at that growth and sustainability of that growth and look at that growth coming without spoiling the quality of the balance sheet,” he said.