Following the business’s announcement that it will hold a board meeting on October 5 to consider a fundraising strategy, global brokerage firm CLSA raised its target price for Pune-based non-banking financial company (NBFC) Bajaj Finance. With a target price of Rs. 9,500, CLSA retains its “Buy” recommendation on the company, indicating a potential 27% increase from the previous closing price of Rs. 7,474.85.
The management of the business, according to CLSA, is confident that this cash infusion will give it the assets it needs for long-term success.
Another international brokerage, Jefferies, advises investors to take a “Buy” position in Bajaj Finance with a target price of Rs 8,830 per share. The issue size might range from Rs 8,000 crore to $1 billion, assuming Bajaj Finance raises 10–15 percent of its net worth. According to Jefferies, this action would dilute the stock by 2% while potentially increasing earnings per share and book value per share for the fiscal year 24E by 6% and 11%, respectively. Jefferies, however, expects a modest drop in return on equity (ROE) to 22%. The brokerage observes that the fundraising campaign has a tier-1 Capital Adequacy Ratio (CAR) of 23%, indicating that it is adequately capitalized.
In light of prospective competition from Jio Financial, this capital increase might represent Bajaj Finance’s proactive strategy to get ready for the changing competitive landscape. Jio Financial has started consumer loan trials in consumer durable and lifestyle outlets controlled by Reliance, according to domestic brokerage Motilal Oswal, although finer specifics of the company’s strategy have yet to be revealed.
Over the last five quarters, Bajaj Finance has consistently maintained a respectable annualized ROE of 23%, reporting 24% ROE in FY23. In FY24 and FY25, according to Motilal Oswal, the company should maintain a ROE of 24-25% (pre-capital raising). The brokerage emphasizes that Bajaj Finance’s omni-channel transformation and digital ecosystem give it potential to increase fee income, client growth, and disbursement momentum.
The company might attain a ROE of 24-25%, according to Motilal, despite the management’s long-term ROE guidance of 21-23%. This capital infusion may be a tactical choice to match the recommended levels and the ROE.
With a target price of Rs 8,800, Motilal Oswal reiterates its recommendation to “Buy” the stock of Bajaj Finance.
Bajaj Finance said on September 22, 2023, that the board would meet on October 5, 2023, to discuss a proposal for raising money through a QIP and/or a preferential issuance, depending on regulatory and shareholder clearances. However, exact information on the amount to be raised and how it would be used was withheld.
Bajaj Finance has a liquidity reserve of Rs 12,704 crore as of the end of June 2023, and its capital adequacy remained strong at 24.61%, with tier-1 capital at 23.01%.
Bajaj Finance’s shares were up almost 3% in price on the stock market, trading at Rs 7,691.00 per share on the NSE. The stock has increased by 21% over the previous six months, and year to date in 2023, it has gained over 17%, outpacing the Nifty 50 index, which has up by 8% over the same time period.