“Hence, I think Bajaj Finance is very well positioned and I wouldn’t be surprised if the stock doubles within two years. All we need to watch is whether the company can bring credit costs under control and ensure the worst is over,” said Vinit Boringkar of Ventura Securities.
How did you assess the market this week? Clearly, money is flowing into large caps. Index benchmarks have risen, but the broader market has been under pressure and hasn’t been doing so well. But it’s been a great week for large caps.
Vinit Boringikal: If you look at the market performance, funds are definitely flowing to large caps. There are around 1,000 stocks that need to be deleveraged by the end of September. Stocks that were bought on margin in brokerages will take a hit. This leverage is mainly coming from defence, railways and the typical extravagant bull market of the past few months. If you look at Bajaj Finance, you will see that after separating out the housing finance business, the remaining focus is on the entire consumer segment. To share some data, the government has distributed close to Rs 50,000 crore to women across all states and the centre, and a similar amount is expected to be given to youth and men. So where will this money be spent? Obviously, it will be on products like garments and consumer durables. Already, outsourcing companies are talking about a 40% increase in sales of, say, air conditioners, but who will finance this? Two-thirds of the loans in this sector are financed by Bajaj Finance. So, I think Bajaj Finance is very well positioned and I would not be surprised if the stock doubles within two years. All we need to watch is whether the company can get credit costs under control and ensure the worst is over. Let me talk about a stock that has performed extremely well today, up nearly 7-8%. I am referring to Paytm, which has risen significantly from the 350 levels on the back of further positive momentum. The company has received a payment services license, which means it can apply for an aggregator license and focus on its core business. Brokerages are getting bullish and you too have an optimistic target on Paytm. What is the reason? Why are you so bullish on this stock?
Vinit Boringikal: Last year, Paytm’s FY24 performance was very strong. At that time, the stock price was around Rs 800-900. Then, due to RBI restrictions, the stock price dropped to Rs 350. But if you look closely, there was no fundamental change in the business apart from the fact that Paytm Bank was taken away. The management managed to retain its merchants. It did away with some of the business lines that could face friction with the RBI, but this was not mandatory. Despite closing these businesses, the merchant business continued to thrive, as did the UPI and marketing services segments. Now, with marketing services being sold to Zomato, we expect a 20% growth over the next three years, which is a respectable number based on FY24 numbers. In terms of loan issuance fees, we expect the pool of funds raised through loans to grow four times over the next three years, and we see fees for the merchant business doubling during this period. Hence, we expect EBITDA to return to positive in Q4 and we do not expect any further regulatory challenges to arise. All that is required has already happened and we expect the share price to start rising going forward. Despite today’s 12% increase, the share price is still below the Rs 800 level where it would have been trading under normal circumstances. Hence, I still believe the share price is undervalued and this supports our ambitious targets.
How did you assess the market this week? Clearly, money is flowing into large caps. Index benchmarks have risen, but the broader market has been under pressure and hasn’t been doing so well. But it’s been a great week for large caps.
Vinit Boringikal: If you look at the market performance, funds are definitely flowing to large caps. There are around 1,000 stocks that need to be deleveraged by the end of September. Stocks that were bought on margin in brokerages will take a hit. This leverage is mainly coming from defence, railways and the typical extravagant bull market of the past few months. If you look at Bajaj Finance, you will see that after separating out the housing finance business, the remaining focus is on the entire consumer segment. To share some data, the government has distributed close to Rs 50,000 crore to women across all states and the centre, and a similar amount is expected to be given to youth and men. So where will this money be spent? Obviously, it will be on products like garments and consumer durables. Already, outsourcing companies are talking about a 40% increase in sales of, say, air conditioners, but who will finance this? Two-thirds of the loans in this sector are financed by Bajaj Finance. So, I think Bajaj Finance is very well positioned and I would not be surprised if the stock doubles within two years. All we need to watch is whether the company can get credit costs under control and ensure the worst is over. Let me talk about a stock that has performed extremely well today, up nearly 7-8%. I am referring to Paytm, which has risen significantly from the 350 levels on the back of further positive momentum. The company has received a payment services license, which means it can apply for an aggregator license and focus on its core business. Brokerages are getting bullish and you too have an optimistic target on Paytm. What is the reason? Why are you so bullish on this stock?
Vinit Boringikal: Last year, Paytm’s FY24 performance was very strong. At that time, the stock price was around Rs 800-900. Then, due to RBI restrictions, the stock price dropped to Rs 350. But if you look closely, there was no fundamental change in the business apart from the fact that Paytm Bank was taken away. The management managed to retain its merchants. It did away with some of the business lines that could face friction with the RBI, but this was not mandatory. Despite closing these businesses, the merchant business continued to thrive, as did the UPI and marketing services segments. Now, with marketing services being sold to Zomato, we expect a 20% growth over the next three years, which is a respectable number based on FY24 numbers. In terms of loan issuance fees, we expect the pool of funds raised through loans to grow four times over the next three years, and we see fees for the merchant business doubling during this period. Hence, we expect EBITDA to return to positive in Q4 and we do not expect any further regulatory challenges to arise. All that is required has already happened and we expect the share price to start rising going forward. Despite today’s 12% increase, the share price is still below the Rs 800 level where it would have been trading under normal circumstances. Hence, I still believe the share price is undervalued and this supports our ambitious targets.
