Bajaj Finance, which is said to be gearing up to raise as much as $1 billion, may be acquiring “growth capital ammunition” to deal with mounting competition, some analysts said, adding that they remain bullish on the stock.
For Jefferies, Bajaj Finance continues to be its pick among non-banking financial companies. Jefferies said in a note that “while it is well-capitalised with a tier-1 CAR (capital adequacy ratio) of 23 percent, this raise may be upfronting of capital to support strong AUM (assets under management) growth (32 percent in Q1) and is reasonably ahead of time.”
Assuming Bajaj Finance raises 10-15 percent of its net worth, the issue size may be around Rs 80 billion/$1bn, Jefferies analysts said. However, they added that this could dilute return on equity to about 22 percent from 23 percent, whereas FY24 earnings per share and book value per share may rise 6 percent and 11 percent, respectively.
The key risks to the valuation, the analysts said, would be a slowdown in growth, higher-than-expected net interest margin compression, or asset quality deterioration.
“Upside can arise from stronger-than-expected growth in consumer durables and rural financing business, and further improvement in operating efficiencies and reduction in cost ratio,” they added.
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