Bajaj Finance jumps 8% on moratorium update; analysts see downside

NEW DELHI: Shares of Bajaj Finance climbed 8 per cent in Tuesday's trade after the recent business update suggests things are not as bad for the NBFC as was previously anticipated.

In an update to exchanges, Bajaj Finance on Monday said its assets under moratorium has reduced to 15.5 per cent as of June 30 from 27 per cent as of April 30, but suggested that it was considering additional accelerated provisioning in the June quarter to further strengthen its balance sheet.

The NBFC said its assets under management (AUM) stood at nearly Rs 1,38,000 crore as of June 30 against Rs 1,28,898 crore in the year-ago period.

Customer franchise as of June 30 stood at 4.3 crore compared with 3.69 crore in the year-ago quarter. The NBFC acquired 5 lakh, new customers, during the June quarter.

Motilal Oswal Securities said the sharp reduction in moratorium is a big positive. "Better performance in asset quality would result in a big delta to earnings via lower credit cost. While the sequential decline in AUM is in line with our expectation, a pickup in economic activities should lead to better AUM growth going forward," the brokerage said.

The brokerage has upgraded the earnings estimates for the stock by 15 per cent for FY21/FY22 but has maintained a neutral view on the stock with a target of Rs 3,000.

Bajaj Finance was among the fastest money-spinners on Dalal Street till 2019. Sitting on a 10-year whopping return of 16,970 per cent on February 20, the multibagger stock fell 64 per cent from a high of Rs 4,923.20 to a low of Rs 1,783.10 on May 27 on concerns the consumer-focused business will be severely affected by the Covid 19 related disruptions.

Still up 6,400 per cent in the last 10 years, the stock has cut year-to-date losses to 24 per cent.

Emkay Global said that it remains appreciative of Bajaj Finance's superior liability franchise and strong collection network. "However, a clarity over asset quality would only emerge after the lockdowns and completion of the moratorium," it said. This brokerage has a target of Rs 2,150 on the stock.

Bajaj Finance stock compounded at 76 per cent annually between 2014 and 2019, justifying a 41 per cent CAGR growth in profit during the same period. It was the second best performing stock on the Street in the last 5 years, as per Motilal's wealth creation study for 2014-2019 period.

Angel Broking, which has an 'accumulate' rate on the stock, said that the scrip is trading at a significant discount to historical average valuations, but a rapid spread of Covid 19 in India poses a big risk.

The shares of the company closed 7.84 per cent higher at Rs 3352.75 on BSE.