Bajaj Finserv delivered a mixed performance for Q4FY25, with robust growth in its lending operations and a slight improvement in life insurance margins, offset by subdued earnings from its general insurance division. Despite a cautious guidance for FY26, Sharekhan has reaffirmed its ‘Buy’ rating on the stock, maintaining a sum-of-the-parts (SOTP) based target price of Rs. 2,350. The report acknowledges the strength of Bajaj Finance’s balance sheet, the improving margin profile of its insurance subsidiaries, and the group’s long-term scalability potential. Investors are advised to monitor execution risks at the subsidiary level.

Q4FY25 Snapshot: Lending Growth Steady, Insurance Mixed

Bajaj Finserv's consolidated Q4FY25 earnings portray a balanced picture, with some areas of strength and others requiring attention.

The company reported a 14.1% year-on-year increase in consolidated net profit, reaching Rs. 2,417 crore, while income from operations climbed to Rs. 36,596 crore. This growth was primarily driven by the performance of Bajaj Finance, which recorded a healthy 19% y-o-y jump in profit.

Assets under management (AUM) for Bajaj Finance rose 26% y-o-y to Rs. 4.17 lakh crore. However, the management has modestly trimmed FY26 guidance for RoA and AUM growth, now forecasting RoA between 4.4%–4.6% and RoE in the range of 19%–20%.

Life Insurance: Margins Improve Despite Sluggish Volumes

The life insurance subsidiary, Bajaj Allianz Life Insurance (BALIC), saw mixed metrics for Q4FY25.

Value of New Business (VNB) rose 14.4% y-o-y to Rs. 549 crore, with margins expanding to 22.1% from 18.1% last year. This margin expansion was driven by a recalibrated product mix, with a stronger focus on high-margin retail protection products.

However, Annualized Premium Equivalent (APE) declined by 6% y-o-y, largely due to weakness in the agency channel, which shrank 17%. Axis Bank contributed 22% to overall APE, while the share of bancassurance remained dominant at 57%.

General Insurance: Weak Performance, But Some Pockets of Growth

Bajaj Allianz General Insurance (BAGIC) delivered underwhelming quarterly results.

Gross written premium (GWP) dropped 12.8% y-o-y to Rs. 4,326 crore, primarily due to muted performance in commercial (-10% y-o-y) and group health (-21% y-o-y) segments. Despite a moderation in claim ratios, the combined ratio deteriorated to 104.8% versus 101.6% y-o-y, owing to a rise in operating expenses.

Yet, there were silver linings. The motor and retail health insurance segments grew 16% and 14% y-o-y, respectively, suggesting selective underwriting strength.

Bajaj Finance: AUM Momentum Intact, Credit Cost in Focus

The lending arm, Bajaj Finance (BFL), remains a cornerstone of Bajaj Finserv’s performance.

Net interest income (NII) rose 22% y-o-y to Rs. 9,807 crore, with fee income up 24%. The pre-provision operating profit (PPOP) increased 24% y-o-y to Rs. 7,967 crore, although provisions surged 78%, reflecting caution around asset quality.

While the provision spike suggests prudent risk management amid uncertain credit cycles, the management has emphasized its focus on optimizing credit costs, which will slightly taper growth guidance in FY26.

SOTP Valuation and Target Price Breakdown

Sharekhan maintains its bullish stance with an unchanged SOTP-based target of Rs. 2,350 per share. The valuation incorporates:

Management Commentary: Strategic Clarity, Operational Prudence

Bajaj Finserv’s management continues to emphasize sustainable, high-quality growth. In the life insurance segment, the BALIC 2.0 initiative is focusing on balancing product portfolios and maximizing operating leverage.

In general insurance, pricing pressure remains in the group health and crop segments, but the company expects to drive profitability through selective underwriting and cost discipline.

Outlook: A Long Runway for Financial Conglomerate

Sharekhan remains optimistic about India’s financial services sector, highlighting strong credit penetration and rising demand for insurance products.

Bajaj Finserv’s subsidiaries are well-capitalized, technologically agile, and strategically diversified. With strong return ratios and resilience in navigating economic cycles, the group remains one of the top picks among financial conglomerates.

Investment Risks

The key downside risk remains deterioration in subsidiary performance, particularly if macro conditions turn unfavorable or regulatory changes impact profitability. Additionally, BAGIC’s elevated combined ratio warrants close monitoring.

Bottomline: Buy Recommendation Stands on Solid Ground

Backed by resilient lending operations, evolving insurance businesses, and a clear growth roadmap, Bajaj Finserv continues to present a compelling long-term investment case. Sharekhan’s reiterated ‘Buy’ call with a Rs. 2,350 target reflects confidence in the group’s ability to deliver consolidated earnings growth, supported by sectoral tailwinds and a prudent management approach.

Investors should consider accumulating on dips, particularly given the moderated guidance that reflects management realism amid macro uncertainty.