Up 34% in 6 months, CLSA sees stock climbing to Rs 9,500 level on fundraising plan

“This would lead to a dilution of 2 percent, whereas FY24E earnings per share and book value per share may rise 6 percent and 11 percent,” Jefferies said in a note.

The brokerage said that return on equity (ROE) may see slight fall to 22 percent. It believes the fundraising is well capitalised with a tier-1 Capital Adequacy Ratio (CAR) of 23 percent.

“Raise may be upfronting of capital to support strong assets under management (AUM) growth,” it said.

Could BAF be raising this capital to compete with Jio Financial effectively?

This capital raise could then be a tacit acknowledgment that Bajaj Finance is readying its capital ammunition for how the competitive landscape is going to evolve over the next few years, according to Motilal Oswal.

“While we still do not have finer details on the game-plan of Jio Financial, it has plans to initially foray into consumer and merchant lending. Some of the channel checks suggest that Jio Financial has already started consumer lending pilots in consumer durable/lifestyle stores owned by Reliance,” the domestice brokerage stated.

BAF has clocked an annualised RoE of 23 percent over each of the last five quarters. It reported 24 percent RoE in FY23 and Motilal expects the company to deliver an RoE of 24- 25 percent (pre-capital raise) in FY24 and FY25.

“BAF’s digital ecosystem and omni-channel transformation will provide it with good levers on increasing its fee income in addition to giving it the firepower for strong customer acquisitions and disbursement momentum,” it said.

According to Motilal, the management’s long-term RoE guidance stands at 21-23 percent but at current leverage, it can clock RoE of 24-25 percent. This capital raise could also be an attempt to bring the RoE within the guided levels, it said.

The brokerage has reiterated a ‘Buy’ on the stock of Bajaj Finance with a target price of Rs 8,800.

Bajaj Finance, on September 22, 2023, reported to the stock exchanges that it has scheduled a board meeting on October 5, 2023 to consider a proposal for raising of funds including by way of preferential issue and/or QIP subject to regulatory and shareholder approvals.

However, the company did not mention the amount it plans to raise and the utilisation of the same.

BAF had a liquidity buffer of Rs 12,704 crore as of June- end. The capital adequacy remained strong at 24.61 percent as of June 30, with tier-1 capital at 23.01 percent.

On Monday, shares of Bajaj Finance were trading nearly 3 percent higher at Rs 7,691.00 apiece on the NSE. The stock has risen by 21 per cent in the last six months. So far in 2023, Bajaj Finance shares have gained around 17 percent, outperforming the Nifty 50, which has gained 8 percent in the same period.