Bajaj Finance shares: Why Jefferies has raised target price on the stock

Market


Bajaj Finance has a shot at being first NBFC to launch credit card, if RBI approves, as per global brokerage Jefferies, which would enable BAF to take product to deeper markets as against the Top-100 towns where it sells cards of RBL Bank/ DBS Bank and where majority of players operate. 

“If it achieves 20-40% cross-sell to nondelinquent client base of 40m and even at lower transaction values, it could make 9-17 bn in profit in 3 yrs. This is 5-10% of FY25E profit & would add growth drivers,” said Jefferies while maintaining Hold rating on Bajaj Finance shares with a price target of 8000 apiece (earlier 7300).

India has 80 m credit cards and is much less penetrated than larger markets. If Bajaj Finance gets approval to foray here, it would be able to leverage its network of +3,500 branches, 140k merchant relationships and 60m customers to ramp-up, it added. 

“Today it procures credit card customers for RBL Bank and DBS Bank with 3m clients right now; these are mostly in top-100 cities limited by banks’ network for underwriting, serving & collections. Hence, an in-house credit card programme can expand opportunity set to deeper markets where BAF is already present,” highlighted Jefferies.

While BAF is targeting to double loans in 3yrs, approval to roll out credit card will add profitable product to the suite. With 60m customers of which 40m aren’t delinquent, if it can cross-sell cards to 20-40% of non-delinquent users and with 40% lower transaction value & loan/ card, it could do 170-350 bn in loans, as per the brokerage house. 

“BAF continues to deliver stronger than peer-group growth as well as profitability. Moreover, even if there is some moderation in NIMs due to rise in funding costs, it could get compensated by potential for operating efficiencies. These would support its premium valuations. We raise earnings marginally & see 28% CAGR in profit over FY23-25 (FY23 should grow fast on low base),” the note added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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