Target: ₹8,953

CMP: ₹6,716.65

Bajaj Finance Ltd’s (BAF) Q4-FY22 earnings were in line with our estimates (PAT at ₹2,419 crore vs Prabhudas Lilladher expectation of ₹2,770 crore), led by robust NII traction and low provisions.

Strong business momentum continued (loans grew 29 per cent YoY/9 per cent QoQ to ₹1,97,400 crore), benign funding costs (CoF) reduced to 6.7 per cent in Q4-FY22 vs 6.72 per cent in Q3-FY22 with improvement in asset quality (Gross NPA down to 1.6 per cent from 1.7 per cent in Q3-FY22).

The digital transformation journey is being closely watched out for and BAF has announced creation of a digital web platform. Investing in a full-fledged web platform, as it is a major driver of traffic, web and app both will co-exist and have similar interface. Phase 1 of web platform will go live by October 2022 and Phase 2 by March 2023

Liquidity buffer of ₹10,100 crore as of March 31, 2022, has normalised to pre-Covid levels.

Given deep investments required to create Omni-channel strategy (geo-expansion, app platform, web platform), BAF expects Opex-to-NII to remain at elevated levels in FY23. Incorporating healthy business/NII traction into our estimates, our FY23 and FY24 EPS stand higher by 8 per cent.

Being valued as a profitable fintech lender, we value BAF at multiple of 8.7x September 2023E ABV with target price increased at ₹8,953 (Previous TP of ₹8,950).