Investor's Eye: Update - Bajaj Finance, Bajaj FinServ

 

Investor's Eye [July 16, 2014]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE     Bajaj Finance Recommendation: Buy Price target: Rs2,560 Current market price: Rs2,187   Strong performance, maintain Buy   Key points  Bajaj Finance Ltd (BFL) reported another quarter of a strong performance with a 22% growth in the operating profit and a 20.3% growth in the net profit in Q1FY2015. This was despite making an accelerated provision of Rs10 crore and advertisement expenses of Rs8 crore during the quarter.  The AUMs grew by 40.1% YoY led by a seasonally strong pick-up from the consumer durable and SME sectors. While the growth slowed down in the two- and three-wheelers, the infrastructure segment is expected to report a better growth in newer products (such as rural finance) going forward. The asset quality improved despite macro challenges. BFL has made deep inroads into consumer finance and SME finance segments and invested in building more products which will support a 20-25% growth in its balance sheet. We expect the company to maintain a healthy asset quality and strong return ratios (RoA of 3.2% and RoE of 21%) in the quarters ahead. We maintain our Buy rating with a price target of Rs2,560 (2.3x FY2016E book value).      Bajaj FinServ Recommendation: Buy Price target: Rs1,075 Current market price: Rs948   Lending and general insurance segments continue to drive earnings   Key points  Bajaj Finserv reported a steady set of numbers for Q1FY2015 as the consolidated PAT was up 14.6% YoY to Rs319.4 crore. The lending business (Bajaj Finance) and the general insurance business both reported a strong performance showing growth of 20.3% and 30.0% respectively in earnings. Since we upgraded the stock on January 15, 2014 it has appreciated by 31%. We continue to maintain our positive stance on Bajaj Finserv due to (a) a strong sustained performance by its lending and general insurance businesses; and (b) expectation of a revival in its life insurance business. We maintain our Buy rating on Bajaj Finserv with an SOTP-based price target of Rs1,075. Key risk: The government has approved 49% composite FDI in the insurance sector (which is perceived as a negative for Bajaj Finserv due to the call option given to its joint venture partner) in the union budget for 2014-15, though the company derives comfort from an RBI circular that suggests the transfer of stake sale will take place at market value. Click here to read report: Investor's Eye     Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards,  The Sharekhan Research Team

 

This e-mail message may contain information, which is confidential,  proprietary, legally privileged or subject to copyright. It is intended  for use only by the individual or entity to which it is addressed. If you  are not the intended recipient or it appears that this mail has been  forwarded to you without proper authority, you are not authorized to  access, read, disclose, copy, use or otherwise deal with it and any such  actions are prohibited and may be unlawful. The recipient acknowledges  that Sharekhan Limited  or its subsidiaries, (collectively "Sharekhan "),  are unable to exercise control or ensure or guarantee the integrity  of/over the contents of the information contained in e-mail transmissions  and further acknowledges that any views expressed in this message are  those of the individual sender and no binding nature of the message shall  be implied or assumed unless the sender does so expressly with due  authority of Sharekhan . Sharekhan does not accept liability for any  errors, omissions, viruses or computer problems experienced as a result  of this email. Before opening any attachments please check them for  viruses and defects. If you have received this e-mail in error, please  notify us immediately at mail to: mailadmin@sharekhan.com and delete this  mail from your records.