Update on the Indian Equity Market:
On Thursday, Nifty ended 0.9%, lower than the previous close at 11,254. The top gainers for Nifty 50 were Dr Reddy (+4.6%), Sun Pharma (+3.7%), and Wipro (+2.5%) while the losing stocks were BPCL (-7.9%), IndusInd Bank (-5.4%), and IOC (-4.0%). The sectoral gainers for the day were Pharma (+3.1%) and IT (+0.7%) while the losers were Media (-2.3%), Pvt Bank (-2.0%) and PSU Bank (-1.9%).
Edited excerpts of an interview with Mr Sanjiv Bajaj, MD, Bajaj Finserv; dated 29th July 2020 from CNBC TV18:
- Mr Bajaj extended support to HDFC chief Mr Deepak Parekh’s view that the Reserve Bank of India should not extend the loan moratorium.
- Bajaj Finserv has a total of 6 months available for moratorium by September, and as the economy has started picking up from last month at varying speeds because of local lockdowns creating issues. But it is picking up other than a few key sectors like hospitality, travel, entertainment which are facing very high challenges. But most others have started at least doing okay. So, at a time like this, Mr. Bajaj believes that it doesn’t make sense to extend a blanket moratorium.
- Moratorium numbers have come down significantly in the month of June as compared to April and May-20 for many banks & NBFCs.
- RBI should allow one-time restructuring rather than extending the moratorium. According to him, let lenders decide on the basis of each one’s own underlying cash flows, because eventually, it should be kept in mind that there is a cost to doing all this and somebody has bear that cost. A 6-month moratorium is long enough, beyond that will start creating a moral hazard that even reasonable quality borrowers will lose the habit of paying.
- Bajaj Finserv sees Rs 6,300 crores of credit cost for FY21E.
- The Company was fortunate enough to raise capital for Bajaj Finance last year. They are adequately capitalised with the Rs 8,500 crore raised last year. As the two insurance companies do not need it, Bajaj Finserv has a significant capital on the books from profits of earlier years.
- The tier-I ratio is 23-24% which he thinks is a comfortable one.
Consensus Estimate: (Source: market screener website)
- The closing price of Bajaj Finserv Ltd was ₹ 6,175/- as of 30-July-2020. It traded at 2.8x/2.5x/2.1x the consensus book value estimate of ₹ 2,188/2,478/2,873 for FY21E/FY22E/FY23E respectively.
- The consensus target price of ₹ 7,248/- implies a PB multiple of 2.5x on FY23E EPS of ₹ 2,873/-.
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