Bajaj Finance $1 Billion Fundraising Plan May Lower Its Return Ratio, Says Jefferies

Bajaj Finance Ltd.'s plans to raise almost $1 billion could lower its return ratios, according to Jefferies.

If Bajaj Finance raises $1 billion, which is almost 15% of its net worth, its return on equity may fall to 22% in FY24E, compared with 23% in FY23, the brokerage said. However, the company's return on assets, or RoA, ratio will remain unchanged at 4.7% for FY24E compared with FY23, it said.

The fundraise will, however, keep Bajaj Finance well capitalised with a Tier-1 capital adequacy ratio of 23%. The planned capital raise is primarily expected to be for "upfronting of capital to support strong AUM growth" of 32% in Q1, Jefferies said.

The raise is also ahead of time, it said. The fundraise would lead to an equity dilution of 2%. The FY24E for earnings per share may rise to 6% and the book value per share (BVPS) may rise to 11%, Jefferies said.

Jefferies continues to maintain a 'buy' for Bajaj Finance with a target price of Rs 8,830 apiece, implying an upside of almost 18%. It also lists it among the top non-banking finance company picks.

Bajaj Finance plans to raise $800 million to $1 billion via the QIP or preferential issue route with four investment banks on Oct. 5, according to a report by Moneycontrol.

According to the report, JM Financial, Citi, Morgan Stanley, and BofA Securities were most likely given a mandate by Bajaj Finance. However, the final decision on deal size and mechanism will be taken in the upcoming board meeting on Oct. 5, it said.

Shares of Bajaj Finance rose 2.92% to Rs 7,722.30 per share, compared with a 0.03% rise in the benchmark Nifty 50.

Of the 35 analysts tracking the company, 26 maintain a 'buy', four recommend a 'hold,' and five suggest a 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 7.3%