Jefferies expects a potential upside of 10 percent for Bajaj Finance, but expects its potential credit cards business to fetch a profit of as much as Rs 1,700 crore in three years.
Buy / Sell Bajaj Finance share
An approval from the Reserve Bank of India (RBI) will make Bajaj Finance the first non-bank lender to launch a credit card.
Shares of Bajaj Finance have been consistent compounders, having given positive annual returns each year since 2012.
If India's largest non-bank lender by market capitalisation manages to achieve even 20-40 percent cross-sell to its client base, it can make a profit of anywhere between Rs 900 crore and Rs 1,700 crore within three years, according to broking firm Jefferies.
The profit figure is 5-10 percent of the company's projected profit for FY25 and will add to the company's growth drivers, the note from Jefferies said.
India has over 80 million credit cards with significantly less penetration than larger markets. Such is the extent of underpenetration that the largest markets (US and China) have 1.07 billion and 780 million credit cards issued, respectively.
Currently, Bajaj Finance has a network of 3,500 branches, relationships with over 140,000 merchants and a customer base of nearly 60 million. Of the 60 million, 40 million are non-delinquent, which means they do not have a large payment overdue. Currently, it procures credit card customers for clients like RBL Bank and DBS Bank and has over 3 million customers for the same.
Jefferies believes that an in-house credit card programme can expand the opportunity for Bajaj Finance to foray into deeper markets. In case of approval, Bajaj Finance will have to invest in building a platform, expand partnerships, spend on reward programs and design products for a wider category of retail and corporate customers.
"Its biggest challenge would be the absence of bank-type customer relationships among deposit clients and corporates," the note said. Based on this, Jefferies expects Bajaj Finance's Return on Assets (RoA) to be lower than the likes of SBI Cards and other mature banks.
For the April-June period, Bajaj Finance booked 7.4 million new loans compared to 4.6 million loans during the same period in 2021. The company is targeting doubling its loans over the next three years. "Approval to the credit card will add profitable product to the suit," Jefferies said.
The broking firm expects Bajaj Finance's growth to continue supporting its premium valuations as it delivers stronger-than-peer group growth and profitability. "Even if there is some moderation in NIMs due to rise in funding costs, it could get compensated by the potential for operating efficiencies," according to the note.
Jefferies has maintained its "hold" recommendation on Bajaj Finance but raised its price target to Rs 8,000 from Rs 7,300 earlier.
Shares of Bajaj Finance are currently trading 0.75 percent higher at Rs 7,328. Their revised priced target implies a potential upside of 10 percent from Friday's closing levels.
First Published: IST