Buy Bajaj Finance; target of Rs 2660: Motilal Oswal

“Bajaj Finance (BAF) 1QFY15 PAT stood at INR2.11b, up 20% YoY and 16% QoQ (11% above est. of INR1.9b). Strong AUM growth (+40% YoY and 12% QoQ) and stable asset quality QoQ (GNPA/NNPA 1.13/0.27%) were highlights of the quarter. AUM growth remained strong (up 40% YoY and +12% QoQ) at INR269.4b, driven by a robust +53% YoY in SME segment and +34% growth in consumer business. Commercial segment (CE and short term infrastructure loans) de-grew 4% YoY. Asset quality remained healthy, with GNPAs/NNPAs at 1.13/0.27% (down 5/1bp QoQ), while PCR also remained stable sequentially at 76%.”

“BAF continues to reap the benefits of healthy consumer demand and is among the few companies doing well in this space. Superior margins, focused fee income strategy, lower credit cost and control over cost ratio will keep core operating profitability strong. It continues to increase market share in the consumer business, though a higher share of incremental growth will be driven by low yielding mortgage business which will exert pressure on margins however strong AUM growth and lower credit cost will mitigate the impact. We expect RoA/RoE of over 2.8%/19% during FY14-16E. Maintain Buy with a target price of INR2,660 (2.4x FY16E BV of INR1,108),” says Motilal Oswal research report.

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