Stock Market Research

Bajaj Finance

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by

stockyogi

Bajaj Finance

Outlook

  • Strong Growth Outlook: Bajaj Finance (BAF) is expected to maintain a robust ~25% CAGR in AUM over the medium term, supported by both core products and scaling of new offerings.
  • Earnings Momentum: AUM, NII, and earnings are projected to grow at 25%, 24%, and 24% CAGR respectively, driven by:
    • Stable to slightly improving net interest margins (NIMs)
    • Better cost efficiency through operating leverage
    • Controlled credit costs due to a healthy asset quality outlook
  • Profitability Metrics: Return ratios are expected to stay strong, with RoA at 4.4–4.5% and RoE at 19–21%, in line with management’s long-term targets.
  • FY26–27 Forecasts: AUM growth of 24% in FY26 and 22% in FY27 remains unchanged. However, margin estimates for FY26/27E are slightly raised to 9.7% due to lower-than-expected borrowing costs in early FY26.
  • Valuation & Risks: While BAF has consistent growth and superior RoE, near-term challenges related to growth, asset quality, and premium valuations may cap upside potential.

Recommendation by Broking Firms (Updated on 25th July 2025)

Issuing CompanyRatingTarget Price
Axis ResearchBuy1100
B&K SecuritiesHold876
HDFC SecuritiesBuy985
J M FinancialBuy1000
Nirmal BangHold978
PL CapitalHold900
Average Target Price988

Links to Reports

Axis_BajajFinance
B&K_Bajaj Finance
HSIE_BajajFinance
NB_BajajFinance
JMF_BajajFinance
PL Capital_Bajaj_Finance

1QFY26 Bajaj Finance (BAF) concall key takeaways:

Business & Growth Outlook

  • AUM grew 25% YoY to ₹4.41 tn in Q1FY26; FY26 AUM growth guided at 23–24%.
  • Record 13.5 mn loans booked and 4.7 mn new customers added in Q1.
  • Company targets 50+ mn loan disbursals and 14–16 mn new customers in FY26.
  • Mortgages remain the largest contributor (~31% of AUM); 2W/3W segment being wound down.
  • Deposit book grew 15% YoY to ₹721.1 bn, contributing 19% of borrowings; to reduce to 15–16% in 12 months.

Asset Quality

  • GNPA/NNPA rose to 1.03%/0.50% (vs 0.86%/0.38% YoY).
  • Credit cost stood at 2.02% of average AUM; remains elevated due to MSME and 2W/3W stress.
  • MSME GNPA rose to 1.76%; 13 of 17 industries tracked show slowdown.
  • ₹2.2 bn MSME loans restructured in Q1; ₹1–1.5 bn more expected.
  • 2W/3W book GNPA surged to 6.38%; business to be wound down by FY26.

Profitability & Margins

  • Cost of funds declined 20 bps QoQ to 7.8%; expected at 7.6–7.65% for FY26.
  • Incremental NCD borrowing cost improved to 7–7.1% (from 8%).
  • NIM expected to expand by 5–10 bps in FY26 on lower borrowing cost.
  • Fee income growth expected to moderate to 12–13% from 17% YoY.
  • ROA/ROE stood at 4.5%/19.0%, within management’s target range.

Subsidiary Performance

  • BHFL: PAT grew 21%, ROE at 2.3%; asset quality stable, but mortgage volumes face competitive pressure.
  • BFSL: Strong traction with ₹61 bn AUM, 37% PAT growth, and 77,000 customer additions.

Risk Management & Strategy

  • Consumer leverage a concern; exposure to customers with 3+ loans reduced to 4% from 5.5% pre-Covid.
  • Business loans to customers with multiple exposures reduced to 17% (from 21% peak).
  • Political risk in Karnataka led to a 40–50% cut in business; the state accounts for 11% of AUM.

Leadership Update

  • Mr. Anup Saha resigned for personal reasons.
  • Mr. Rajeev Jain re-appointed as MD till March 2028; succession planning to begin in 6 months.

Capital & Funding

  • Capital adequacy remains robust at 21.0%; Tier-1 at 21.2%.
  • Company shifting funding mix toward NCDs, ECBs, and bank loans to reduce deposit reliance and borrowing cost.