Stock Pick From Finance Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           ......

HERE IS WHY
Revamped performance by subsidiaries
Favourable RONW

Bajaj Holdings & Investment Limited (BHIL) is an India-based holding and investment company. The company focuses on earning income through dividends, interest and gains on the investments held. The company's other equity portfolio is a combination of listed and unlisted investments. BHIL invests in equities based on the company's views of returns from the public equity markets, as well as opportunities in the private equity space. Bajaj Holdings & Investment (BHIL) holds Bajaj Group’s investments in two flagship companies Bajaj Auto with a stake of 31.49 per cent and in Bajaj Financial service with a stake of 39.29 per cent.

Bajaj Auto coming up with strong product portfolio and increasing portion in premium models. The company is likely to show growth in volumes post FY18. A good monsoon is likely to add on to domestic sales volumes for the company. We also expect revival in its export volumes and 3W sales to grow due to pick up in the rural demand. The company also has a very strong margin profile which would boost profits for the company. Bajaj financial service has posted a strong growth in its leading business in successive quarters and we expect the company to do the same in the future. The company is likely to change its strategy by focusing more on individual insurance business which would benefit company in long term prospects. The company is continuously looking to expand its operation by raising funds through NCDs and issue of debentures. IFS's investment would also help the company to tap offshore capital and diversify its funding.

On the financial front the revenues for Bajaj Holdings & Investment Ltd. have declined substantially by 69 per cent to Rs178.82 crore in Q4FY17 as compared to the previous corresponding quarter. The EBITDA for Bajaj Holdings & Investment Ltd. has declined substantially by 72 per cent in Q4FY17 as compared to the corresponding previous quarter. Its EBITDA margin is declined by ~840 bps in Q4FY17 comparing it with Q4FY16. The PAT for Bajaj Holdings & Investment Ltd. has declined significantly by 77 per cent in Q4FY17 as compared to the previous corresponding quarter. Its PAT Margin is declined by ~2250 bps in Q4FY17 comparing with its previous corresponding quarter.

On segmental revenue front, the company earned 72.99 per cent of its income from dividends, 16.11 per cent from interest, 9.50 per cent from sale of shares and securities in FY16.

On the financial front FY17, Bajaj Holding & Investment Ltd's top line decreased by 37 per cent to Rs880 crore as compared to the same period in the previous financial year. Also, EBITDA has declined substantially by 51 per cent to Rs672 crore as compared to FY16. The bottom line for the company stood Rs538 crore resulting in a decline of 57 per cent y-o-y.

The ROCE for Bajaj Holding & Investment Ltd was 14.77 per cent in FY16. The company has a market capital of almost Rs23000 crore with a zero debt on its standalone balance sheet. The RONW for the company is 2.99x in FY17 an increase by 61 bps y-o-y. We recommend our reader-investors to BUY this stock.