Bajaj Finance shares continued to ebb for the third straight trading session on Wednesday. In the last two days, the consumer finance stock has fallen almost 5 percent.
Investor sentiment turned cautious in the stock after global brokerage CLSA initiated a 'sell' rating citing high valuations that are at risk from slowing growth and rising competition. The brokerage has set a target price of Rs 6,000 per share on Bajaj Finance stock.
Following the ‘sell’ rating, the Bajaj Finance stock has corrected more than 8 percent this week at today’s low of Rs 6835.10 per share on the Bombay Stock Exchange (BSE).“Bajaj Finance would likely undershoot investors’ expectations over the medium term,” the CLSA report said, adding that a large base, decline in customer repeat purchase ratio, and rising competitive intensity in core segments pose risks to the company’s medium-term loan growth.
According to the brokerage, Bajaj Finance’s foray into fintech is an enabler in maintaining 20-22 percent assets under management (AUM) growth rather than a value driver over and above that.
“Valuation, on an absolute and a relative basis, both, is far higher than its own history/peers, which we believe is not justified. We value Bajaj using a residual income (RI) model assuming 20% PAT Cagr over a 15-year period (FY23-38) and 5% terminal growth; we arrive at a TP of Rs6,000 (5.8x FY24CL BVPS) and initiate with a SELL rating,” it said.
CLSA believes the COVID-19 pandemic’s impact on growth is here to stay. Fintechs (partnered with banks and payment companies) and credit cards are increasingly posing a threat in the consumer durables financing segment, which is Bajaj’s key funnel for customer acquisition, the brokerage said in its report.
After Bajaj Finance reported financial results for the September quarter, which missed Street expectations, the shares of the company were witnessing a downtrend, and then too Krishnan ASV, lead analyst-BFSI, HDFC Securities, has pointed to steep valuations as one of the red flags.Though Bajaj Finance shares have underperformed in the past month and have corrected more than 9 percent, the stock has returned 30 percent year-to-date against a Sensex return of 21 percent.
Bajaj Finance stock ended 211.65 points or 2.99 percent lower at Rs 6857 apiece on the BSE and was down 206.90 points or 2.93 percent to Rs 6,859 per share on the National Stock Exchange (NSE).
