Global brokerage firm Bernstein has initiated coverage ratings on three banking and financial firms: Bajaj Finance, IndusInd Bank, and Muthoot Finance. Analysts are optimistic about the Indian banking sector, citing robust credit growth and favorable asset quality, and believe it has a promising future as a great compounding story.
Bernstein has given Bajaj Finance a 'market-perform' rating with a target price of Rs 6,800 per share. Analysts noted that while the NBFC major has healthy growth prospects, there is potential for consensus earnings cuts due to headwinds. "Challenges include a sector-wide trend of slowing consumption credit, increased competitive intensity, and the already high scale of Bajaj Finance, which limits outperformance against the overall sector," they stated in a recent note.
Despite these challenges, Bernstein expects Bajaj Finance to achieve a compounded annual growth rate (CAGR) of 21 percent in earnings over FY24-26 and values the company at a PE of 24x FY25E EPS.
On the other hand, Bernstein has initiated an 'outperform' rating on IndusInd Bank, with a target price of Rs 1,800 per share, citing the bank's strong positioning for a potential rate easing cycle and high exposure to attractive segments like commercial vehicles and micro-finance.
"We view IndusInd Bank as a quasi-NBFC due to its NBFC-like loan book composition and weak deposit franchise. We expect the company's return on equity (RoE) to be 15-16 percent between FY24-26," the brokerage firm added.
Similarly, Bernstein has started an 'outperform' rating on Muthoot Finance with a target price of Rs 2,000 per share. The brokerage firm sees a promising future for gold loans, considering Muthoot Finance the best play in this segment. They anticipate a 19 percent earnings CAGR from the gold financier and value it at a PE of 15x FY25 EPS.
So far this year, shares of Bajaj Finance and Muthoot Finance surged up to 20 percent, while IndusInd Bank declined by 5 percent. In comparison, the benchmark Nifty 50 index has increased by 8 percent during the same period.
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