Bajaj Finance share price: Nomura raises target, sees 18% upside; here's why

Nomura has maintained its 'Buy' rating on Bajaj Finance Ltd, or BAF, and raised its target price to Rs 1,270, while saying the stock offers 18 per cent upside. In its latest note, the foreign brokerage said it sees Bajaj Finance delivering 24-26 per cent assets under management, or AUM, growth in FY27 despite competition and regulatory issues.

The brokerage said discussions between non-banking financial companies and the Reserve Bank of India are continuing, and that clarity on the definition of 'revolving credit' remains critical. It also said the RBI Deputy Governor, in a recent media interview, indicated that the central bank is open to suggestions and will consider practical challenges arising from the draft regulation on revolving credit, while reiterating that revolving credit was never allowed for NBFCs and that the regulation was introduced to bring more clarity.

On Friday, Bajaj Finance shares were trading 0.12 per cent lower at Rs 1,093.70. The scrip is up 32 per cent in the past six months.

Nomura said the definition of revolving credit in the draft RBI document has left room for interpretation, and that it is awaiting clearer definitions in the final regulation. Alongside this regulatory overhang, it said competition in personal loans remains elevated and that BAF's urban personal loan growth has already slowed.

The brokerage said Bajaj Finance's growth momentum in urban and rural personal loan segments has diverged since Covid. In rural markets, the company recalibrated during FY24 and FY25, which kept momentum slow. In urban markets, momentum remained strong for longer, but slowed to below 20 per cent from the third quarter of FY26.

Nomura said elevated competitive intensity is the key reason for the slowdown. It noted that BAF's personal loan book is equal to the combined personal loan books of the next nine NBFCs, but added that many NBFCs and fintech platforms have been scaling up rapidly in this segment over the past few quarters.

On its scenario analysis, Nomura said consolidated AUM growth in the second quarter of FY27 could remain subdued because of regulations on flexi loans, which form part of the personal loan business, as well as competition. However, it said management's plans to scale up gold loans and a recovery in MSME loans from the third quarter of FY27 could help deliver 24-26 per cent year-on-year AUM growth in the closing quarter of FY27. It also noted that management, during the fourth-quarter FY26 results conference call, had guided for 22-24 per cent AUM growth for FY27.

The brokerage said it has raised its FY27 AUM growth estimate to 25 per cent year on year and lowered credit cost assumptions by 4-11 basis points across FY27 to FY29. As a result, it said net profit estimates have been raised by 3 per cent over FY27-FY29. Nomura also said it has rolled its valuation forward to September 2027, with the revised target price of Rs 1,270 implying price-to-book and price-to-earnings multiples of 4.2 times and 21.9 times, respectively, as of September 2028. It added that the stock is currently trading at 4.5 times one-year-forward price-to-book value.