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    After 3-fold rise since March, will this multibagger run out of steam?

    Synopsis

    The recent rally in the stock has raised concerns for many.

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    A robust and consistent performance has made the stock an attractive bet for some.

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    MUMBAI: As Bajaj Finance shares ruled at record high levels, investors have turned anxious if this multibagger can continue its uptrend or develop fatigue after growing nearly three times from their March lows.

    Bajaj Finance on Tuesday crossed the Rs 3 lakh crore mark in market capitalisation for the first time, as the stock of the country’s largest non-banking finance company (NBFC) hit a record high in an otherwise lacklustre market.

    The stock scaled a record high of Rs 5,152 on Tuesday, and its market-cap hit the Rs 3.09 lakh crore mark.

    The Sensex stock had tumbled more than 50 per cent in March, when the onset of the Covid-19 pandemic rattled the market across the board. It hit a 52-week low of Rs 1,783 on May 27. Since, the stock has multiplied nearly 3 times.

    It has been a consistent performer on the bourses, and is up 7,456 per cent over the past decade. The stock has logged gains in 16 of last 19 calendar years since 2000, and has doubled investor wealth every six years.

    Bajaj Finance is engaged in lending and allied activities, and focused on consumer lending, small and medium-sized enterprises (SME) lending, commercial lending, rural lending, fixed deposits and value-added services.

    As of Tuesday, December 15, the stock had 6 ‘strong buy’, 5 ‘buy’, 9 ‘hold’, 5 ‘sell’ and 3 ‘strong sell’ ratings on the publicly available Reuters Eikon database.

    On December 1, ICICIdirect came out with a buy rating on the stock, and raised the price target to Rs 5,900 from Rs 3,850 earlier.

    “Bajaj Finance has sailed through the headwinds and emerged stronger with a leaner operating model and robust growth guidance,” ICICIdirect analysts said.

    They pointed out that RBI’s new banking licence review has recommended that large NBFCs with more than Rs 50,000 crore assets with at least 10 years’ existence can apply for banking licence.

    “Also, the company management’s comment to consider the same bodes well for a long-term view on the stock. The NBFC’s ~25 per cent growth guidance for FY22E and the opportunity to apply for a banking licence have resulted in renewed investor interest in the stock,” the brokerage said.

    A robust and consistent performance has made the stock an attractive bet for some.

    Mahantesh Sabarad, Head of Retail Research at SBI Capital Markets, said he does not have a rating on the stock at this point of time, but pointed out that the economic recovery may lead to good growth in consumer financing. “The stock valuations appear stretched, as does not have a directly comparable peer that can match its performance, which makes it very attractive for investors to hold,” Sabarad said.

    However, the recent rally in the stock has raised concerns for many. “I am concerned about the quality of the retail book. One should be booking profits at this point,” said independent analyst Ambareesh Baliga.

    “With strong flows from FIIs (foreign institutional investors), there are very limited stocks where their money is getting in, and Bajaj Finance has been one of them,” he said.

    That seems to be the concern for others too.

    “More than 700 FIIs hold the stock. When there is risk-on trade and liquidity is pouring in, such stocks naturally grab attention due to the sheer size, management quality and past performance,” said Abhimanyu Sofat, head of research at IIFL Securities.

    Currently, as many as 727 FIIs own 21.31 per cent stake in Bajaj Finance.

    “However, the stock trades at a price to book of more than 8 times, and such valuations definitely look stretched. On the retail side, the NPA pain is still persisting,” he said.

    For the quarter ended September, Bajaj Finance posted 35.94 per cent year-on-year drop in net profit at Rs 964.88 crore, which lagged analysts’ estimates. Thanks to the ongoing pandemic, the company further increased its provisions on Stage 1 and 2 assets by Rs 1,370 crore to Rs 5,099 crore as of September 30.

    Sofat, who had a ‘buy’ rating on the stock until now, says he would now rate it at ‘hold’ after the recent runup.
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    1 Comment on this Story

    Prem Jain34 days ago
    an eye opener no doubt. thanks a lot
    Read before you invest. Insights on Bajaj Finance Ltd.. Explore Now
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