Bajaj Finance Limited (BFL) is one of the leading non-banking financial companies (NBFC) in India and is part of the illustrious Bajaj group. Though BFL started as the captive financier to two and three wheelers manufactured by Bajaj Auto, the company entered various other lending segments and became one of the significant players in the retail asset-financing industry. BFL’s diversified product suite now comprises >19 product lines divided broadly into four categories like consumer, SME, commercial and rural. The company is the largest financier of two-wheelers and consumer durables in India.
Valuation: BFL has delivered healthy operating performance with steady asset quality over the last five years. Going ahead, we expect 32% CAGR in earnings over FY17–19E driven by robust AUM growth (34% CAGR) coupled with stable asset quality. Moreover, we expect BFL to continue to deliver ~3%+ RoA and ~20%+ RoE on sustainable basis in the medium term. Given the strong growth rate, unbeatable asset quality and superior return ratios, its premium valuations within the NBFC space is justified. Thus, we initiate coverage on BFL with a BUY rating and assign a TP of Rs1,541 (P/ABV of 6.0x for FY19E).
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