This Non-Banking Financial Company has nearly Zero Leverage on its Books with no Liquidity issues nor NPA Risks

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Bajaj Holdings and Investment (BHIL) is a Non-Banking Financial Company (NBFC). So as similar to other NBFC companies facing a liquidity crunch and NPA threats, the stock of BHIL has also been beaten down considerably. However, the true fact is that BHIL has neither liquidity crisis nor Non-Performing Assets Risks. Additionally, unlike major NBFCs, BHIL has nearly zero leverage on its balance sheet.

Bajaj Holdings and Investment

With a market capitalization of 200 Billion Rupees, Bajaj Holdings & Investment (BHIL) is a decent size, so as a result, it is on the radar of institutional investors. We can see that Bajaj Holdings & Investment does have institutional investors, and they hold 17% of the stock.

Bajaj Holdings & Investment is not owned by hedge funds. The company’s largest shareholder is Bajaj Sevashram Pvt. Ltd., with ownership of 24%, The second and third largest shareholders are the Firodia Group of companies and Nirajkumar Bajaj, holding 5.3% and 4.8%, respectively. Nirajkumar Bajaj also happens to hold the title of Chairman of the Board.

That’s because BHIL is basically the holding company of the Bajaj group and has significant stakes in the lending NBFC (Bajaj Finance) as well as the life and non-life insurance arms.

After all, being a parent holding company, BHIL’s fortunes and performance are totally attached to that of the businesses it owns. But there are a couple of prime reasons why the company’s long term prospects seem attractive.

Safe and Stable Holdings in Insurance Businesses

Insurance is an extremely attractive, high float business. Unlike the global counterparts, Indian insurance majors have been growing their float at a healthy pace as the market is still grossly under-penetrated. But most of the newly listed insurance companies continue to trade at fairly expensive valuations. Buying a company that holds majority stakes in tow well-known insurance companies, at a discount, is, therefore, a big positive.


Lean Balance Sheet and Negligible Risk to Book Value

Unlike lending NBFCs that could see significant markdown of their book values due to higher NPA ratios in the coming quarters, BHIL has no such risk to its book value. Its lean balance sheet allows the entity to tide over the COvid-19 crisis with ease.

Significant Margin of Safety in Valuations

The prime factor in BHIL’s books is the value of its investments. As of December 2020, the cost of the investments was barely 10% of the market value.

Despite the possibility of significant write-down in the market value of the investments (especially the listed subsidiaries) during the COVID-19 phase, there is a sufficient margin of safety in buying the business at book value.

The stock of BHIL is currently trading below book value. A prolonged and extended lockdown period could make a big dent on its profitability and return ratio in FY21. And there may be a spillover in Financial Year 2022 as well.

Hence, I recommend my dear followers and readers to consider buying the stock at lower prices and wait for some correction. Best Buy price of Bajaj Holdings & Investment stands around Rs 1,500 with a long term horizon of 4-5 years and a target of Rs 5000.

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