In its latest research update, Motilal Oswal has maintained a Neutral stance on Bajaj Finance Ltd (BAF), assigning a target price of Rs 10,000—an upside of about 10% from the current market price of Rs 9,093. While the non-banking financial giant delivered a resilient fourth quarter with healthy asset growth and stable margins, elevated credit costs due to an ECL model refresh and a high valuation multiple limit near-term re-rating triggers. That said, the long-term fundamentals remain strong, supported by a consistent expansion in assets under management (AUM), stable returns, and prudent cost management.

Strong Profitability Despite One-Offs in Q4FY25

BAF’s net profit rose 19% YoY in Q4FY25 to Rs 45.5 billion. Adjusted for one-offs related to excess ECL provisioning and tax reversals, the underlying profit growth stood at 17% YoY.

Net interest income grew 23% YoY to Rs 98.1 billion, in line with street expectations. This was complemented by non-interest income of Rs 21.1 billion, which rose 24% YoY due to strong fee income and services revenue.

Cost of Borrowings and NIM Stability

The net interest margin (NIM) compressed by 10bps QoQ to 9.65% in Q4FY25. Management forecasts NIMs to remain steady at ~9.9% in FY26, aided by a 10–15bps reduction in the cost of funds. If borrowing costs decline more than expected, margin expansion may occur.

Elevated Credit Costs Post ECL Refresh

Credit costs spiked due to an ECL model refresh, with BAF booking an incremental Rs 3.6 billion provision primarily on Stage 1 assets. Despite this, the company guided for FY26 credit costs between 1.85% and 1.95%.

Asset Quality Trends Remain Healthy

Gross Stage 3 (GNPA) improved to 0.96%, declining by 15bps QoQ, while Net Stage 3 (NNPA) stood at 0.44%. The provision coverage ratio (PCR) slightly dipped to 53.7%. The management stated early vintage trends are improving across portfolios.

Momentum in AUM and Customer Growth

Total AUM expanded by 26% YoY to Rs 4.17 trillion, with new loans booked rising 23% YoY to 10.7 million.

Customer base grew to 101.8 million, up 22% YoY. The Urban and Rural B2C, SME, and Commercial segments led the sequential growth.

FY26 Guidance: Growth with Cost Discipline

BAF’s outlook for FY26 includes:

AUM growth of 24–25%, driven by new businesses.

NIM to stay flat YoY as borrowing costs decline.

Operating leverage improvement via 40–50bps reduction in cost-to-income ratio.

RoA/RoE expected at 4.4–4.6% and 19–20%, respectively.

Valuation Remains a Concern

The stock trades at 4.1x FY27E BV and 21.4x P/E, which limits upside given the current market sentiment and lack of immediate triggers.

Motilal Oswal projects PAT CAGR of ~25% over FY25–FY27 and sees RoE improving to 21% in FY27.

Key Financial Projections

Here is a summary of the forward estimates:

Corporate Developments & Capital Actions

BAF announced a 1:1 stock split and 4:1 bonus issue, enhancing liquidity and investor accessibility.

Dividend of Rs 44/share declared, maintaining a payout of ~19% of standalone profits.

Branch Expansion and Strategic Execution

The company added:

137 new gold loan branches, taking the total to 964.

30 microfinance branches, now totaling 333.

Management restructured its leadership team by appointing three Deputy CEOs to lead strategic business verticals.

Conclusion and Investor Guidance

Bajaj Finance continues to demonstrate remarkable consistency in earnings delivery and franchise expansion. However, current valuations appear rich, especially in the absence of catalysts like a material interest rate cut or a new growth engine.

Motilal Oswal recommends a Neutral rating with a target price of Rs 10,000, based on 4.5x FY27E BV. Investors with a long-term view may consider accumulating on dips, while those holding the stock may maintain positions, awaiting further clarity on margin and cost trends.