This NBFC multibagger is back with a bang, and promises to go the distance

Mumbai: Once a darling of global and domestic investors, this stock is back in action after a hiatus, and analysts believe the comeback rally is kicking off a new uptrend.

The company is Bajaj Finance, the country’s largest non-banking consumer finance company. Already a multibagger, the stock is a clear favourite of international as well as domestic investors.

As many as 842 foreign institutional investors (FIIs) collectively held 21.16 per cent stake in the shadow lender at the end of March quarter, out of which the Government of Singapore owned 4.51 per cent, data from Marketsmojo.com showed. Some 49 mutual fund schemes together hold 8.08 per cent in the company.

Shares of Bajaj Finance are up 6,261 per cent over the last decade, 459 per cent in last 5 years and 110 per cent in last 3.

The stock went through a turmoil on the back of the Covid-19 crisis, the subsequent lockdown and the loan moratorium announced by the Reserve Bank of India (RBI). It has tumbled 58 per cent since the start of the year to hit a 52-week low of Rs 1,783.10 on May 27.

However, the stock is up 69 per cent since then to trade at Rs 3,016.10. It is the 11th-most valued company in India, and ranks higher than even the country’s topmost lender State Bank of India in terms of market capitalisation
The stock had 9 ‘strong buy’, 8 ‘buy’, 7 ‘hold’, 1 ‘sell’ and 1 ‘strong sell’ ratings on the Reuters Eikon data as of Thursday.

“The rally in Bajaj Finance stock is also based on the overall bullishness in the broader market, tracking gains in world equities,” said Abhimanyu Sofat, Head of Research, IIFL Securities.

“Bajaj Finance has managed to open a large number of its branches. They are talking about improvement at the ground level and the people opting for moratorium may come down too,” he said.

“In the NBFC space, it is the best bet, considering what has happened, We are also gung-ho about two-wheeler volumes, and with the market opening up, Bajaj Finance clearly stands to benefit. The stock should post decent performance in the near to medium term,” he said.

IIFL Securities has a ‘buy’ rating on the stock. The brokerage said it would re-evaluate the rating post June quarter earnings.

On June 12, Nirmal Bang Institutional Equities initiated coverage on the stock with a ‘buy’ rating and a fair value estimate of Rs 3,026,

“We are cognizant of the near-term concerns that investors have regarding asset quality and loan growth challenges.

While we concur with this view and build the same into our near/medium-term numbers, we also believe that these numbers would only be transient in nature,” Nirmal Bang said in a note.

“Structurally, we think that the company is on a solid footing with respect to steady state profitability, balance sheet strength, underwriting capability and the larger macro opportunity in the consumer finance segment,” it added.

The brokerage said the company also ticks one of the most important pieces on its checklist, which is management longevity.

“We observe that more than 75 per cent of the management team has been around since last 7-18 years, which is what partially explains the sustained business performance over the period,” Nirmal Bang analysts added.

In March, the Reserve Bank of India (RBI) offered a three-month moratorium for repayment of loans, as part of the measures to fight the Covid-19 crisis.

The central bank in April also announced long-term repo operation (LTROs) targeted at shadow bankers with a condition that half of the funds availed by banks must go to small and mid-sized NBFCs. However, this attempt met with failure as the central bank received a subdued response from banks, who were risk averse.

The problems for the Bajaj Finance stock first started when RBI announced the first moratorium as that was being seen as having caused some uncertainty to the businesses of NBFCs and even other lenders.

“Now that is where the management gave some kind of guidance or outlook on what will happen. The results came in and a lot of provisions were taken not only by Bajaj Finance but by other NBFCs and lenders as well,” Kunj Bansal, Partner and CIO Sarthi Group, said in an interaction with ET Now on June 23.

Bansal said the tipping point probably came in when the RBI announced the second moratorium and that was suddenly seen by the market as something that can lead to more than required pressure on the company in terms of their asset quality.

The NBFC managed the crisis well, and being a quality business the stock recovered sharply from the earlier lows. “We all very clearly know that leaving the banks aside, within the NBFCs, this is the largest in terms of market cap, business, assets under management, number of clients, number of borrowers and any other parameters. In fact the management intentionally also took the decision to not lend aggressively till the situation normalizes,” Bansal said.

On June 1, Geojit Financial Services upgraded the stock to ‘buy’. “Recording strong topline performance in this quarter we believe that the heavy provisioning will give enough buffer in this challenging environment amidst COVID-19, eventually allowing the company to bounce back,” Geojit said in a note.