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Bajaj Finserv: Comprehensive Recommendation
The recent monetary policy moves by the RBI, including a 50 bps repo rate cut and a 100 bps CRR cut, have injected approximately ₹2.5 trillion of liquidity into the financial system. This has provided a significant boost to non-banking financial companies (NBFCs), which are generally better positioned than banks to pass on rate benefits quickly to customers.
Following this development, shares of Bajaj Finance surged 5–6% intraday and gained nearly 10% over two days, clearly outperforming traditional banks during this phase. Bajaj Finserv, through its flagship lending arm, benefits from this environment as fixed-rate lenders typically see improved margins and stronger demand when rates fall.
Operating Performance & Strategy
Bajaj Finserv reported a consolidated net profit of ₹2,231 crore in Q3 FY25, registering a 3% year-on-year growth, with assets under management (AUM) expanding by 28% to ₹3.98 lakh crore.
In Q4 FY24, Bajaj Finance recorded a 29% increase in net interest income, with AUM rising 35% — demonstrating robust growth in both consumer and SME lending segments.
The company is actively pursuing AI-driven efficiency programs, targeting ongoing annual savings of ₹150 crore from FY26 onward.
It is also expanding its presence in green financing, with an aim to develop a ₹2,000 crore green loan portfolio by FY26 in partnership with international finance bodies.
Corporate Actions Enhancing Accessibility
Bajaj Finserv has announced a 1:2 stock split and a 4:1 bonus issue, with the record date set for June 16, 2025. This move is expected to improve the stock’s affordability and liquidity in the market, making it more accessible to a wider base of retail investors.
Promoter Stake Sale & Institutional Confidence
A ₹5,500 crore block deal involving 2.86 crore shares (~1.79% stake) was recently executed in the price band of ₹1,880–₹1,925 per share.
Top institutional investors, including SBI Mutual Fund, ICICI Prudential Mutual Fund, Morgan Stanley Asia Singapore, BofA Securities Europe, and Aditya Birla Sun Life Mutual Fund, were major buyers in this transaction — a strong endorsement of the company’s growth prospects.
Despite the large promoter stake sale (~2% of total equity), the stock remained resilient and even gained 2% on the day of the deal, reflecting strong underlying demand and market confidence.
Valuation & Analyst Consensus
Bajaj Finserv is currently trading at approximately 34 times forward earnings, a premium to the sector average. However, this valuation is supported by the company’s consistent execution and superior growth trajectory.
Analyst consensus points to a median 12-month upside potential of around 17%, with target price estimates ranging from ₹7,800 to ₹9,260.
Key Risks
- Margin pressure: Net interest margins may contract by 30–40 bps, though the recent CRR cut is expected to mitigate some of this impact.
- Loan mix: The increasing proportion of unsecured loans could introduce greater volatility, particularly in rural and SME segments.
- Valuation sensitivity: Given its premium valuation, any shortfall in execution or earnings could trigger a downside correction.
- Competitive landscape: Rising competition in consumer finance could impact pricing power and future growth rates.
Retail Investor Strategy
- Entry timing: Retail investors should consider adding positions before or during the stock split/bonus timeline (June 16).
- Phased buying: Accumulate in tranches during any broader market dips or volatility.
- Position sizing: Limit exposure to 8–12% of the overall portfolio to manage concentration and valuation risk.
- Ongoing monitoring: Track quarterly updates for trends in asset quality, loan composition, margin evolution, and progress in digital and green financing initiatives.
Expected Outcomes
- Base case: 15–25% upside over the next 12–18 months, driven by favourable policy environment, strong growth execution, and positive impact from corporate actions.
- Upside scenario: Faster acceleration in green loans, stronger than expected cost savings, and stable margins could deliver returns exceeding 25%.
- Downside scenario: A material earnings miss, sharper margin compression, or deterioration in asset quality could limit gains or lead to moderate downside.
Conclusion
Bajaj Finserv remains one of the best-positioned NBFCs in India, with a strong combination of operating strength, policy tailwinds, and structural growth drivers. While the stock currently commands a valuation premium, this is justified by its consistent execution and market leadership.
The upcoming stock split and bonus issue provide an additional catalyst for enhanced retail participation. For disciplined retail investors with a medium to long-term investment horizon, Bajaj Finserv continues to represent a quality BUY opportunity.
Company Overview
Bajaj Finserv Limited is one of India’s most diversified financial services groups. It operates through subsidiaries in lending (Bajaj Finance), insurance (Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance), asset management, wealth advisory, housing finance, and health finance.
It offers a well-balanced play on India’s growing demand for financial services, with a strong presence in consumer finance, SME lending, insurance, and emerging sectors like green finance.
Recent Financial Performance
- In Q3 FY25, Bajaj Finserv reported a consolidated net profit of ₹2,231 crore, up over 3% year-on-year.
- Total income for the quarter was ₹32,042 crore, a growth of around 10% year-on-year.
- Assets Under Management (AUM) grew by approximately 28% to ₹3.98 lakh crore.
- Gross Non-Performing Assets (GNPA) rose slightly to 1.12%, and Net NPA to 0.48%, showing marginal deterioration in asset quality.
For Bajaj Finance (its lending arm), Q4 FY24 results were also strong:
- Net interest income grew ~29%.
- Pre-provision operating profit increased 26%.
- AUM grew 35%, led by strong traction in consumer and SME segments.
Expected Outcome
- Base case: 15–25% upside over 12–18 months, driven by policy tailwinds, growth execution, and corporate actions.
- Upside scenario: Acceleration in green loans, consistent cost savings, and stable margins could push returns above 25%.
- Downside scenario: Earnings miss, lower-than-expected margin recovery, or deterioration in loan quality could restrain upside.
Summary Table
| Factor | Impact | Recommendation |
|---|---|---|
| Policy-driven NBFC rally | Positive | BUY |
| Operating momentum & strategy | Positive | HOLD/ADD |
| Share dilution by promoters | Neutral | Manage via phased buying |
| Institutional co-investment | Strong positive | CONFIDENTIA |
| Valuation | Caution advised | Proceed with discipline |
