Buy Bajaj Finance; target of Rs 2315: Sharekhan

Sharekhan is bullish on Bajaj Finance and has recommended buy rating on the stock with a target of Rs 2315 in its June 12, 2014 research report.

“In response to recent media reports suggesting a fraud in Bajaj Finance’s mortgage lending business, the company’s management has clarified that the accounts in question are very few in number (10-12 accounts) and that such accounts would require additional provisioning of Rs5 crore in the worst case. Moreover, it does not expect any risk of delinquencies as the said advances are backed by strong collaterals. Traditionally also, the NPAs in SME mortgages have been quite low at below 10BPS (5-7BPS) of the advances.” “The company has sacked the erring employees and replaced the business head (internal transfer) immediately to avoid any loss of business. It has also maintained the guidance of a 20-25 percent growth in the advances in FY2015. We believe that given the group pedigree (Bajaj group), this incident could be taken as a one-off event with no material impact on the company’s financials. We also derive comfort from the conservative accounting and provisioning practices followed by the company. We, therefore, maintain our rating and price target for Bajaj Finance (price target: Rs2,315) and Bajaj Finserv (price target: Rs1,075),” says Sharekhan research report.

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