India's Digital Transformation And Customer Base Will Unlock Value

Key Takeaways

• Strong customer acquisition, digital transformation, and financial inclusion efforts are driving consistent growth, expansion opportunities, and enhanced operational efficiency.
  
• Diversified product offerings and improved funding strategies increase resilience, reduce dependency, and support continued profitability despite short-term sectoral challenges.
  
• Rising credit risk, competitive pressures, and dependence on costlier funding sources threaten asset quality, profitability, and financial stability amid regional and macroeconomic uncertainties.

Catalysts

Operates as a deposit-taking non-banking financial company in India.

• Rapid expansion of Bajaj Finance's customer franchise, with over 4.7 million new customers added in Q1 and a growing addressable market from higher discretionary spending by India's expanding middle class, supports future revenue growth as both product penetration and new customer acquisition remain robust.
  
• Significant ongoing investment in digital transformation (FINAI capabilities and "super app" ambitions), including the deployment of AI to improve customer acquisition, underwriting, and collections, is expected to enhance operational efficiency and lower cost-to-income ratios, supporting net margin expansion.
  
• Continued formalization of the Indian economy and acceleration of financial inclusion-facilitated by government policy, increased digital adoption, and Bajaj's broad distribution network-positions the company to capture market share among millions of first-time borrowers, boosting the top of the funnel and fueling long-term AUM growth.
  
• Product and geographic diversification, including strong growth from gold loans, microfinance, and rural lending, helps offset short-term cyclical weakness in MSME and 2-wheeler lending, providing resilience to overall earnings and reducing dependence on single product lines.
  
• Easing funding costs, with management expecting further reductions in cost of funds through a shift toward NCDs, ECBs, and bank borrowings, combined with improved liability management and pricing discipline, is likely to drive NIM (net interest margin) expansion and support profitability in the coming quarters.

Bajaj Finance Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bajaj Finance's revenue will grow by 31.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 44.9% today to 37.7% in 3 years time.
• Analysts expect earnings to reach ₹333.6 billion (and earnings per share of ₹46.05) by about September 2028, up from ₹174.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹275.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.0x on those 2028 earnings, down from 31.9x today. This future PE is greater than the current PE for the IN Consumer Finance industry at 27.2x.
• Analysts expect the number of shares outstanding to grow by 0.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.47%, as per the Simply Wall St company report.

Bajaj Finance Future Earnings Per Share Growth

Risks

• A large portion of the MSME (business loans) portfolio is entirely unsecured and is currently experiencing significant stress due to a sudden slowdown in key industries and contraction in credit supply; this elevates credit risk and may lead to higher loan losses, negatively impacting asset quality, provisions, and net margins over the long term.
  
• There is rising competitive intensity in core business segments such as mortgages and consumer lending, causing higher attrition and putting pressure on both customer acquisition and volumes; this could erode revenue growth and squeeze profitability as market competition intensifies.
  
• The need to restructure loans for stressed MSME customers and reliance on offering remediation options suggests underlying borrower overleveraging, which, if macroeconomic conditions don't improve, could create a persistent cycle of higher provisioning requirements and compressed earnings.
  
• The company is shifting its funding mix away from deposits (which are expected to drop to 15-16% of funding), increasing reliance on more expensive and potentially volatile funding sources like NCDs, ECBs, and bank borrowings; this could lead to higher cost of funds and narrow net interest margins if credit markets tighten or rates rise.
  
• Elevated political risk and credit challenges in key geographies such as Karnataka (which contributes 11% of the balance sheet) and potentially other large states introduce region-specific volatility, which may unpredictably impact portfolio quality, revenue stability, and overall financial performance.

Valuation

• The analysts have a consensus price target of ₹976.67 for Bajaj Finance 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 ₹1150.0, and the most bearish reporting a price target of just ₹640.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹885.4 billion, earnings will come to ₹333.6 billion, and it would be trading on a PE ratio of 29.0x, assuming you use a discount rate of 16.5%.
• Given the current share price of ₹896.3, the analyst price target of ₹976.67 is 8.2% 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.