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My thread on #Bajajfinance stock - Company analysis, Segments, Valuation by inbuilt Growth vs RoR and Intrinsic valuation by Excess returns model. This involves a lot of assumptions and rationale (I may be wrong in my assumptions) #Stockanalysis #Stockvaluation
This is for academic purpose and not a recommendation, Purpose to share and highlight how to go about analysing and valuing a NBFC. I have not used the traditional DCF model because its not recommended to value Banks/NBFCs through DCF model
Business analysis - Below are the business segments of Bajaj Finance and classification of what these segments do?
Below is the snapshot of revenue mix and performance of the different segments. Consumer B2C lending tops at 23% while SME lending stands 2nd at 16%. I expect these 2 segments to underperform in the coming qtrs along with auto loans segments which stands at around 10% of revenue
Let us assume #Bajajfinance EPS to be around 85 for Mar 2020 (TTM is around 90/-), Lets assume we want a 20% returns on our investments made at current levels So let's see how the stock has to perform in 2025 while I also assume a very conservative PE of 25 even in year 2025!
If you see above, with these assumptions, the stock mkt price shud b around 5500/- from current 2200/- levels to give me 20% CAGR in 5 yrs. To achieve this at PE of 25 the EPS has to be around 220/ which is 21% CAGR- (Is this achievable? - Well EPS has grown at 38% for last 5 yrs
Now lets look at Excess return model - It is better suited to calculate the intrinsic value of fin. cos than the traditional discounted cash flows model. The key assumption for this model is that equity value is how much the firm can earn, over and above its cost of equity,
@datta_arvind @DhanValue @gvkreddi @Bullish2023 - Thought you guys may be interested in this and your comments r welcome! My target entry price of 1.5x is simply coz I like the brand :) and am willing to pay premium
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