Is Bajaj Finance Ltd. a Good Investment Opportunity in 2023?

Bajaj Finance has gained recognition as a good investment option for shareholders looking for a significant return on their investment over the long term. This article delves into the positives that make it a multi-bagger prospect, recent market performance, as well as the company's future prospects and growth.

Positives to Become a Multibagger

Bajaj Finance, with its robust customer base and diverse revenue streams, presents a compelling investment case. The company boasts over 16.66 million customers with a wallet account and more than 12.98 million with a UPI (Unified Payments Interface) handle. These metrics underscore the company's significant penetration and customer loyalty. Additionally, during FY 2023, the company recorded 15.92 million bill payment transactions, reflecting strong engagement and utility in its services.

Moreover, Bajaj Finance has shown impressive growth in lending. In FY 2023, the company disbursed a record 29.6 million loans, marking a 20% increase from the previous fiscal year. This growth is supported by a solid financial backing, reinforced by credit ratings from CRISIL and ICRA, both rating the company's deposit program as AAA/Stable. These ratings indicate a high level of trust and financial stability, making Bajaj Finance a reliable investment.

Challenges and Market Performance

While Bajaj Finance has demonstrated remarkable growth, it's important to note that the stock, like any other, is subject to market fluctuations. The stock price of Bajaj Finance peaked at around INR 4,923 on February 20th, 2023. Subsequently, the stock experienced a severe correction, hitting a low of INR 1,865 by May 22nd.

The stock's fall can be attributed to several factors, including the economic impact of the COVID-19 pandemic, the extension of the loan moratorium, and general market uncertainty. Notably, the company's financial resilience during these challenging times has been commendable, as evidenced by its ability to maintain its market position and avoid the large-scale capitulation seen in many other companies during the same period.

Valuation and Future Prospects

Regarding valuation, Bajaj Finance currently trades at an EV/EBITDA ratio of 11.15 and a P/E ratio of 21.61, which are fairly conservative numbers. The company's market capitalization stands at INR 1,137.28 billion, and its share price stands at INR 1,895.30. These metrics suggest that the stock is undervalued at current levels, making it an attractive long-term investment.

For investors seeking a more gradual approach, it is advisable to purchase shares over time rather than in a single investment. This strategy not only spreads risk but also provides an opportunity to accumulate shares at varying prices. Bajaj Finance offers a compelling growth story, especially for investors with a long-term outlook.

Conclusion

Based on its strong customer base, robust financial performance, and a conservative valuation, Bajaj Finance Ltd. appears to be a good investment opportunity. However, investors should be prepared for potential short-term volatility and consider their investment horizon. Those who are prepared for the long-term can benefit from its predicted multi-bagger potential.