Digital Transformation And Urbanization In India Will Unlock Opportunities

Key Takeaways

• Digital transformation and expanded financial offerings are improving operational efficiency, driving revenue growth, and enhancing customer value across financing, insurance, and investment segments.
  
• Greater control of insurance subsidiaries and disciplined risk management position the company for sustained profitability and strategic advantages in a growing financial services market.
  
• Margin and profitability pressures persist across insurance, lending, and digital platforms due to rising competition, muted growth, deteriorating asset quality, and structural revenue constraints.

Catalysts

Through its subsidiaries, provides financial services in India.

• The growing formalization and digital adoption in India's financial services are supporting Bajaj Finserv's expanding customer base, evidenced by continued strong growth in new customer additions (BFL added 4.69 million customers this quarter, targets 14–16 million for the year) and robust loan origination and renewal premiums, creating clear visibility for broad-based revenue acceleration.
  
• Sustained urbanization and the expanding middle class are driving demand for consumer finance, housing loans, protection, and investment products, with Bajaj Finance and Bajaj Housing Finance AUM growing 25% and 24% respectively, and BALIC's renewal premium up 28%-building durable top-line momentum and underlining the company's ability to scale across adjacencies.
  
• Ongoing digital transformation has started to lower operating costs (BFL's OpEx to net total income improved, and BALIC is driving cost rationalization across processes and channels), positioning Bajaj Finserv for margin improvement and stronger operating leverage as technology investments mature.
  
• Enhanced cross-sell and product mix optimization-such as growing focus on term insurance in BALIC (now 30% of agency customers), increased protection business, and deepening distribution partnerships-are set to elevate fee income, improve net margins, and boost value of new business (VNB up 39% in BALIC), signaling rising customer lifetime value.
  
• Increased control and ownership of insurance arms following Allianz's planned exit, alongside robust solvency margins and a disciplined underwriting approach, give Bajaj Finserv strategic flexibility to unlock synergies, pursue profitable growth, and further strengthen consolidated earnings power over the long term.

Bajaj Finserv Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bajaj Finserv's revenue will grow by 13.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.0% today to 8.5% in 3 years time.
• Analysts expect earnings to reach ₹169.5 billion (and earnings per share of ₹98.29) by about September 2028, up from ₹95.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹132.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.4x on those 2028 earnings, down from 32.9x today. This future PE is greater than the current PE for the IN Diversified Financial industry at 23.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.42%, as per the Simply Wall St company report.

Bajaj Finserv Future Earnings Per Share Growth

Risks

• Persistently high combined ratios above 100% in the general insurance business (BAGIC), with management acknowledging only an "endeavor" to remain near 100%, imply rising competitive pressures, higher acquisition/commission costs for preferred segments, and the risk that underwriting profitability may not improve, potentially capping margin expansion in BAGIC and putting net margins under medium-term stress.
  
• Intense price competition in key growth areas like motor insurance and fire, without corresponding price hikes in motor TP over multiple years, increases the risk that market share gains may come at the expense of underwriting discipline, resulting in sustained low or negative underwriting profitability and exposing margins and earnings to future shocks if loss ratios rise.
  
• Life insurance topline growth (BALIC) has been "muted," with repeated degrowth in channels like the agency business and a significant drag from declining group protection sales tied to MFI sector stagnation; if industry credit uptake remains weak or cost rationalization initiatives fail to sustain, revenue and VNB growth could remain structurally constrained.
  
• Lending subsidiaries face rising net loan losses and provisions (e.g., Bajaj Finance's provisions rose 26% YoY), and asset quality metrics (GNPA, NNPA) are starting to deteriorate from historical lows. This over-reliance on consumer finance growth, coupled with intense competition and higher loan loss cycles, poses a risk to future net margins and profitability, especially during economic downturns.
  
• Growth in platform and fintech subsidiaries (e.g., Bajaj Markets) has exhibited volatility, with decreased topline and transactional volumes linked to digital journey changes. As digital-native fintechs and embedded finance options gain traction, Bajaj Finserv's ability to defend and grow digital revenues is at risk, which could suppress future consolidated revenue growth and operating leverage.

Valuation

• The analysts have a consensus price target of ₹2154.562 for Bajaj Finserv based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2430.0, and the most bearish reporting a price target of just ₹1450.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹1994.0 billion, earnings will come to ₹169.5 billion, and it would be trading on a PE ratio of 30.4x, assuming you use a discount rate of 14.4%.
• Given the current share price of ₹1966.1, the analyst price target of ₹2154.56 is 8.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.