Bajaj Finance Ltd. has convinced Motilal Oswal Financial Services that its recovery is no longer just a normalization story. In a July 31 results update, analysts Abhijit Tibrewal, Raghav Khemani, Nitin Aggarwal and Pranav Nawale upgraded their rating on the non-bank lender to Buy and set a target price of Rs 1,300 a share, premised on 4.8 times estimated book value for fiscal 2028. Against a current market price of Rs 1,054, that target implies roughly 23% upside. The company's market capitalization stands at approximately Rs 6.56 trillion, according to the report.

The Quarter By the Numbers

Net interest income rose 23% year-on-year to roughly Rs 125.7 billion, matching the brokerage's forecast, while non-interest income climbed 11% to Rs 26.5 billion. Operating expenses grew a comparable 23% to Rs 50.1 billion, leaving pre-provision operating profit up 19% year-on-year at Rs 101.4 billion. Credit costs of about Rs 19.9 billion came in roughly 10% below the brokerage's estimate; excluding a prudent Rs 2.96 billion macroeconomic provision taken as a buffer against geopolitical and monsoon-related risks, adjusted credit costs for the quarter stood even lower, near 1.3%.

Three Pillars Behind the Upgrade

Motilal Oswal frames its more constructive stance around three structural arguments. First, the credit cycle has turned: vintage loan performance across early repayment cohorts continues to improve and is now running at or better than pre-pandemic levels, giving the brokerage confidence to lower its credit-cost estimates to 1.5% and 1.45% for the current and following fiscal years. Second, multiple growth engines are firing at once — core lending, a expanding digital ecosystem, a rapidly scaling gold-loan business, and new business lines the company plans to launch by early next year. Third, the brokerage sees room for further earnings upgrades, arguing that the duration and scale of this new profit cycle are not yet fully reflected in the stock.

Growth Engines: Rural Lending, Gold Loans and Artificial Intelligence

Rural and urban sales finance were standout performers, growing 49% and 38% year-on-year, respectively, aided roughly equally by higher volumes and rising average sale prices. The company's small-business lending segment grew a more modest 2%, reflecting a deliberate pullback since mid-2025 as part of risk-calibration efforts, though management expects that growth to resume by the third quarter. New customer acquisition reached 5.1 million for the quarter, and the company has lifted its full-year target to 18 million to 20 million new customers, up from an earlier goal of 15 million to 17 million.

Gold loans are emerging as a meaningful growth lever: branches dedicated to the product are expected to expand to roughly 2,800 by the end of the fiscal year, with gold-loan assets targeted at Rs 290 billion to Rs 310 billion. On the technology front, the company's artificial-intelligence team is set to grow from 230 to 400 employees, and management expects AI-driven voice and text channels to facilitate Rs 110 billion to Rs 120 billion in disbursements this fiscal year, up from roughly Rs 25 billion in the first quarter alone.

Financial Summary and Estimate Revisions

Motilal Oswal raised its earnings-per-share estimates by 4% for fiscal 2027 and 2% for fiscal 2028, reflecting higher expected loan growth and lower credit costs. The brokerage now models a profit compound annual growth rate of roughly 30% between fiscal 2026 and fiscal 2028, with return on assets and return on equity reaching 4.2% and 21.4%, respectively, by the final year of that forecast.

What Could Slow the Story

Motilal Oswal's own estimates carry caveats worth weighing. Cost of funds is expected to stay range-bound but with a modest upward bias, given ongoing geopolitical tensions tied to West Asia; management has flagged incremental borrowing costs rising 30 to 60 basis points in fixed-income markets even as the company's blended funding cost has held steady. Net interest margins are guided to moderate a further 10 to 15 basis points this fiscal year. The company's capital-adequacy ratio remains healthy at 21%, and management has said it would rather dilute its stake in Bajaj Housing Finance than raise fresh equity capital, though that decision itself introduces a variable for investors to track. Competitive intensity, per management, remains elevated across public banks, private banks and other non-bank lenders.