Bajaj Finance - Rural foray, high NIM, stable asset quality - Anand Rathi

- Likely RoE improvement, shored up by stable margins, improving share of fees and stable credit costs

- High capital adequacy of 17.4% (tier-1: 12.1%) provides impetus for more-than-past credit growth

- NIM protection in FY14, estimated at 3% over FY14-15, helped by CASA share sustained at over 40%

- Led by improving business growth across customer segments, we estimate fee-to-average-earning-assets to be higher - 1.5% in FY14 and 1.6% in FY15, compared with ~1.4% over FY10-13

- Adequate NPA coverage (75.4%); we expect stable credit costs,~64bps over FY14-15, to aid profitability.

- We expect the healthy loan growth, rising proportion of secured lending and high NPA coverage to drive a sustainable RoA of more than 3.3% over FY13-16. At our price target of Rs. 1,905 the stock would trade at 2x FY15e BV and 1.8x FY16e BV. Our target is based on the two-stage DDM (CoE: 15.5%; beta: 1.04; Rf: 8.5%)

Key risks: Slowdown in the economy

Source : Equity Bulls

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