Mumbai: Bajaj Finance jumped 4.6%, leading the Nifty gainers in Monday’s trading, as investors cheered the lender’s plans to raise funds from the market. Analysts said the move, in addition to bolstering the company’s capital base, is expected to improve its financial ratios. The stock closed at ₹7,819.20 on the BSE on Monday off the day’s high of ₹7,848.35.
The company said its board will meet on October 5 to consider raising funds through a preferential issue or qualified institutional placement.
The fundraising plan helped the stock shrug off the recent underperformance on account of concerns over rising competition and pricey valuations.
“The stock has seen time and valuation correction and has underperformed the broader markets for almost a year,” said Aniruddha Sarkar, chief investment officer at Quest Investment Advisors. “The Street was concerned about the growth in Bajaj Finance amidst the rising competitive landscape.”
Analysts expect Bajaj Finance to raise around $1 billion though this could not be independently verified.
“The company seems to be eyeing aggressive growth across sectors and is also building up its war chest for competition, especially from Jio Financial Services,” said Sarkar.
Brokerage Jefferies said the stock remains among its top NBFC picks and the fundraising could result in its Book Value Per Share increasing by 11% and Earnings Per Share rising by 6% in FY24. It has set a price target of ₹8,830 on the stock.
Motilal Oswal Financial Services said Bajaj Finance could be raising this capital to compete with Jio Financial ‘effectively’.
“This capital raise could then be a tacit acknowledgement that BAF is readying its capital ammunition for how the competitive landscape is going to evolve over the next few years,” said the brokerage in a client note. Motilal has a price target of ₹8,800 on the stock.
Bajaj Finance shares have gained 11.8% in the past three months as against the 5.4% up move in the Nifty.
“The NBFC space is going through a regulatory overhang, and Bajaj Finance share has only consolidated, while the demand has been muted,” said Dharan Shah, founder of Tradonomy, an investment advisory. “The announcement will trigger fresh demand especially since Bajaj Finance is the only major stock in the category post HDFC reverse-merger.”
Once the stock crosses 7,900, it would be a ‘great bet’, he said.
“The company has continually expanded its margins and has high confidence due to its past performance,” said Shah. “The stock has not crossed the September 2021 high yet and has a high return on earnings on capital of 24-25% as of Q1FY24, which makes the stock an attractive pick in the NBFC segment.”
Sarkar recommends investors to continue holding the stock as he believes valuations are not expensive. “The stock is currently at almost the historical average of the last 10 years on both one-year forward P/B (Price to Book) and P/E (Price to Earnings),” he said.
Sarkar though is less optimistic about various other NBFCs. “The increased unsecured lending in the NBFC space is increasing the riskiness in the sector and investors should be cautious about betting on weaker balance sheet NBFCs,” he said.
