Analysts said investor appetite for Bajaj Finance remains strong because of better asset quality and profitability than most lenders.
Bajaj Finance overtook India’s largest bank by assets State Bank of India in market value on Tuesday, becoming the fifth most valued in the country’s BFSI (Banking, Financial Services and Insurance) basket. The market capitalisation of the finance company stood at Rs 2.32 lakh crore as against SBI’s Rs 2.28 lakh crore after the state-owned bank’s shares fell 5.5 per cent on Thursday. Bajaj Finance, which has remained unscathed in the NBFC crisis, has been a top performer with the stock soaring over 13.41 times, or 1341 per cent, in the past five years. During this period, SBI gained 5.62 per cent.
Analysts said investor appetite for Bajaj Finance remains strong because of better asset quality and profitability than most lenders. Bajaj Finance shares have returned 36257 per cent in the past 10 years. An investment of Rs 1 lakh in Bajaj Finance stock on October 1, 2009 would have grown to Rs 3.64 crore today.
Analysts, however, warned valuations of Bajaj Finance could be stretched. Bajaj is trading at almost 9 times FY20 estimated Price to Book as against 4 times of HDFC Bank and less than 1 per cent of SBI. Despite cheap valuations, analysts are cautious about SBI. Last week, Morgan Stanley downgraded its rating on the stock to ‘equalweight’. The brokerage said the upside in the stock appeared limited given uncertainty on asset quality and net interest margins (NIMs) and that the ongoing credit crunch in India among weaker-rated borrowers could impact SBI.
