Domestic brokerage firm Ambit has initiated a ‘sell’ call on Bajaj Finance. Citing Bajaj Finance as the ‘most expensive lender’ in the country’, it said that high growth and return on equity are already built into its valuations.
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Notably, Bajaj Finance shares have corrected 22 per cent in the last 6 months, erasing a wealth of around Rs 2.83 lakh crore of investors.
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Ambit said that it sees further downside of 18 per cent in the counter as it tagged ‘sell’ call for a price target of Rs 5,028 per share.
The brokerage said that Bajaj Finance is facing multiple challenges to gain scale amid strong competition in the home loan market.
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It said that the company has a large market share in MSME/personal loans within NBFCs where competition is increasing from banks.
The lender, it said, is trading at a ‘significant’ premium to other housing finance companies, non-banking finance companies and large-cap private banks.
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Bajaj Finance growth is slowing down mainly due to size and competition. The company has already a 23 per cent CAGR which no other Indian bank, NBFC or HFC has witnessed in the last couple of decades, and it has a 45 per cent market share amongst NBFCs in commercial/personal loans wherein competition is increasing from banks. The cost of funds is likely to be 250 bps higher than large banks which makes BAF uncompetitive.
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As growth slows down to around 20 per cent for Bajaj Finance over FY25-42, expect the valuation premium over banks to reduce, it said.
Bajaj Finance’s one-year forward valuation implies a 25 per cent AUM growth with a 20 per cent RoE over the next decade, according to the brokerage. However, growing at a 25 per cent CAGR requires surpassing market leader HDFC’s current market share over the next decade which might be impossible, said Ambit.
Ambit anticipates a 30 per cent CAGR in earnings per share in fiscal 2022-25, with an average return on equity of about 22 per cent. Throughout the fiscal years 2025–2042, it is building a 19 per cent loan growth and 20 per cent RoE.
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Meanwhile, shares of its parent firm Bajaj Finserv, the parent company of Bajaj Finance, have also corrected nearly 26 per cent in the last 6 months. Bajaj Finserv’s shares last closed at Rs 1328.85 on Tuesday.