Buy Bajaj Finance shares, says Axis Securities as it sets target price at Rs 1,050

Axis Securities on Tuesday recommended a 'Buy' rating on Bajaj Finance. The domestic brokerage has set a target price of Rs 1,050 per share on Bajaj Finance, forecasting a 14 per cent upside potential from the prevailing market levels. Bajaj Finance demonstrated remarkable operational resilience despite macroeconomic challenges, the brokerage suggested. 

The NBFC's asset under management (AUM) grew by an impressive 25 per cent year-on-year in FY25, Axis Securities said. This growth spanned across various segments, with a conscious strategy to hold back in areas showing elevated stress, it added.

Bajaj Finance also made strides in secured segments, post the lifting of restrictions on eCOM and InstaEMI products in early FY25. The strategic focus on secured segments has been pivotal in maintaining growth momentum.

Financially, Bajaj Finance expanded its customer base by adding 1.8 crore new customers, a 25 per cent year-on-year increase, bringing the total to 10.2 crore. New loan bookings grew at a healthy pace of 20 year-on-year. However, net interest income (NII) growth was slower due to a 49 basis points compression in net interest margins (NIMs). This compression was a result of competitive pressures and market conditions.

Despite challenges in the rural B2C segment and macroeconomic headwinds, Bajaj Finance maintained pristine asset quality. The gross non-performing asset (GNPA) and net non-performing asset (NNPA) levels were kept at sub-1 per cent levels, demonstrating effective risk management. GNPA/NNPA was reported at 0.96 per cent/0.44 per cent for FY25, slightly up from 0.85 per cent/0.37 per centthe previous year.

Axis Securities acknowledged Bajaj Finance’s strategic decisions, including curtailing lending in high-risk areas and terminating co-branded credit card partnerships with DBS and RBL to focus more on secured loans. The company has a strong pipeline for new product introductions in FY25, contributing to its solid financial and operational performance.

The operational review highlighted that risk-weighted assets totalled Rs 3,89,981 crore, a 24 per cent increase year-on-year, with the company strengthening its distribution network to cover 4,263 locations, including rural and smaller towns. The expansion included new product offerings like vehicle leasing for corporates and solar financing. This broadening of offerings is expected to enhance customer reach.

Axis Securities expects Bajaj Finance to continue its growth trajectory with a 25 per cent compound annual growth rate (CAGR) in AUM over the medium term. The expected growth is driven by steady NIMs, improved cost ratios due to operating leverage, and a positive outlook on asset quality. The company is forecasted to achieve an RoA/RoE of 4.4-4.6 per cent/19-21 per cent, aligning with management’s long-term guidance.

Competitively, Bajaj Finance is positioned strongly with its diverse portfolio, deep market understanding, and omni-channel strategy. These strengths are expected to help it capture a larger share of the non-banking financial company (NBFC) market which is witnessing an increasing credit-to-GDP ratio.

Axis Securities valued the stock at 4.9 times its FY27 estimated adjusted book value (ABV). This valuation reflects confidence in Bajaj Finance's strategic initiatives and robust financial health, projecting sustained growth in the coming year, the brokerage said.