Bajaj Finance stock at Rs 9,000? InCred shares 3 reasons for 21% potential upside #CashNews.co

Calling it a high-conviction stock, InCred Equities has suggested a ‘ADD’ rating on Bajaj Finance with a target price of Rs 9,000, citing rising product diversity, listing of the housing arm and comfortable valuation. InCred Equities said it prefers Bajaj Finance due to its superior growth, conservative underwriting and top-notch return ratios. It believes that the asset quality concerns over rural distress for Bajaj Finance are overdone, as it anticipates a positive surprise with a better-than-expected revival in rural India.

“Considering its rising product diversity, listing of the housing arm & comfortable valuation, we have added BAF to our high-conviction list with a target price of Rs 9,000,”it said.

The stock rose 3.22 per cent to hit a high of Rs 7,438.20 on BSE. Monday was the sixth straight day of gains for Bajaj Finance. The scrip has risen 10.43 per cent during this period. InCred Equities’ target price suggests another 21 per cent upside over this price.

InCred said its recent channel check indicates green shoots at consumer durable stores, with inventory build-up before the upcoming festive season. The relief, it said, is also becoming visible in several rural pockets with good monsoon advancement and improved employment data.

“Bajaj Finance has been consolidating its rural lending book in the past few quarters amid asset quality concerns and in case of a revival, it will be the fastest to gain advantage,” InCred Equities said.

It noted that Bajaj Finance’s management was the first to raise its concerns about overleveraging among rural customers and increasing the credit cost guidance for FY25.

The recent trend does indicate that major headwinds for the rural economy are softening gradually which, in turn, may result in a positive surprise on the asset quality front for Bajaj Finance, the domestic brokerage said.

“Our discussion on the ground continues to advocate BAF’s superior positioning vs. most peers, due to its best-in-class turnaround time, wide customer database, innovative tech platform, and an efficient management pedigree. Considering the economic revival, listing of the housing arm & comfortable valuation, we add BAF to our high-conviction list with an ADD rating & a target price of Rs9,000 or 5 times FY26F BV,” InCred Equities said.

A slowdown in AUM and a rise in asset quality stress are two downside risks for the stock.

BAF witnessed a sharp surge in opex in FY21-22 amid its investments in digital infrastructure, but with major tech-driven costs already behind, the opex-to-average assets ratio improved to 4.1 per cent in the June quarter against 4.8 per cent in Q2FY23. InCred Equities expects the same to improve to 3.5 per cent by FY26F, with revenue growth surpassing costs. This will be key for return on asset (RoA) improvement, despite a volatile margin trajectory amid stiff competition, it said.