Bajaj Finance (BFL) is a deposit-taking Non-Banking Financial Company (NBFC-D) registered with the Reserve Bank of India (RBI). Established in 1987 as Bajaj Auto Finance Ltd. and later renamed Bajaj Finance Ltd. in 2010. The company has a diversified lending portfolio across retail, SMEs and commercial customers with a significant presence in urban (~37% of total branches) and rural India (~63% of total branches).

Over the last 5 years, advances have grown from Rs. 1.47 lakh crores in FY20 to Rs. 4.17 lakh crores in FY25 reflecting a CAGR of 23%. The company operated a network of 4,263 branches with a customer base of 10.18 Crores at the end of FY25.

Others include gold loans, Loan against securities, car loans, rural sales finance.

• Mortgages: Company’s market share in housing finance market stood at ~4% in FY24. Its AUM has grown from Rs.0.33 lakh crores in FY19 to Rs. Rs.1.03 lakh crores in FY24 reflecting a CAGR of 23% beating the industry growth rate of 13%. Within the overall mortgage portfolio, home loans account for ~52%, followed by loan against property (LAP) at ~20%, lease rental discounting at ~18%, and developer finance at ~9%. The five-year average GNPA in this segment stood at ~0.64%, underscoring superior asset quality alongside strong growth.
• Urban & Rural B2C loans: This segment comprises personal loans extended to salaried and self-employed individuals in both rural and urban areas. Company has a market share of ~7% in personal financing in FY25. Its AUM has increased from Rs.0.30 lakh crores in FY20 to Rs.1.09 lakh crores in FY25 reflecting a CAGR of 21% matching industry growth CAGR of 21% in last 5 years. 5 Years Avg.GNPA in Urban & rural B2C loans segment stood at ~1.19%.
• SME: Company’s market share in SME lending stood at ~1.2% in FY25, indicating significant headroom for growth in this segment.  Its AUM has increased from Rs.0.19 lakh crores in FY20 to Rs.0.50 lakh crores in FY25 reflecting a CAGR of 21% beating the industry growth rate of 18%. 5 Years Avg.GNPA in SME segment stood at ~1.31%.
• Commercial lending: In this segment, the company provides financing to auto component manufacturers, light engineering industry, financial institutions, specialty chemical, pharma, packaging and other midmarket companies. Company’s AUM has increased from Rs.0.06 lakh crores in FY20 to Rs.0.28 lakh crores in FY25 reflecting a CAGR of 34%. 5 Years Avg. GNPA in commercial lending stood at ~0.20%. 
• Urban sales finance: This segment covers financing for products such as consumer electronics, furniture, digital devices, e-commerce purchases, and retail spends. Company holds a commanding market share of ~45% in consumer durable financing. Its AUM has increased from Rs. 0.15 lakh crores in FY20 to Rs.0.37 lakh crores in FY25 reflecting a CAGR of 19% beating the industry growth rate of 17%. 5 Years Avg. GNPA in Urban sales finance stood at ~0.85%.
• Two & Three wheeler finance: Company’s AUM has increased from Rs.0.13 lakh crores in FY20 to Rs.0.17 lakh crores reflecting a modest CAGR of 6%. This is attributable to Bajaj Auto establishing its own captive finance company, leading to a gradual decline in Bajaj Finance’s share in this segment. Currently, approximately 40% of Bajaj Auto’s two- and three-wheelers are financed by Bajaj Finance. The five-year average GNPA for this segment was ~7.13%.

• The share of deposits in overall borrowings has increased from 17% in FY20 to 20% in FY25, which is a positive development as deposits are company’s cheapest source of funding.

How Bajaj Finance has been able to grow?

Bajaj Finance has market share of 2.2% in India’s total credit and is targeting to reach ~3-4%.

• Cross sell: The Company has a large customer base of ~101.8 million, of which ~64.5 million customers (~65%) are cross-sell customers. This strategy of cross-sell helps company to manage cost and portfolio risk, as company has experienced that an existing customer typically demonstrates significantly lower credit risk than a new one.

• The number of cross-sell customers increased from 24 million in FY20 to 64 million in FY25, reflecting a CAGR of 22%. However, AUM per cross-sell customer grew at a moderate CAGR of 3%, while PAT per cross-sell customer increased at a CAGR of 4% over the same period. 

  Bajaj Finance has increased its customer franchise at a CAGR of 22%. The company follows an Omni channel strategy; ensuring customers are seamlessly connected through both offline and online channels. This growth is achieved via:

  • Geographical expansion: Over the last 5 years Bajaj has added ~2,433 branches taking its total number of branches to 4,263 in FY25. Bajaj Finance employs a strategic geographical expansion program using GDP contribution as a key criterion for selecting new locations.

• Digital platforms (Bajaj Finserv App & web): The Bajaj Finserv App has become a cornerstone of customer acquisition and engagement. With over 70.6 million net installs as of FY25, it ranks among the top five financial services apps in India. In FY25 app facilitated:
  • On boarding of over 562,600 EMI card customers, 
    • Disbursed Rs. 10,131 crore in personal loans and Rs. 1,347 crore in gold loans. 
    • Acquire more than 30,000 credit cards.
• Introduction of the product and scale up: Bajaj Finance not only introduces new products but also rapidly scales them. Originally incorporated as an auto finance company, Bajaj Finance has evolved to become India’s most diversified NBFC. The company continues to expand its portfolio, adding products such as gold loans and car loans. For example, Bajaj Finance launched its gold loan portfolio just two years ago, and the portfolio has grown from Rs. 4,599 crores in FY24 to Rs. 8,307  crores in FY25, reflecting a robust growth of 81%. The number of gold loan branches expanded significantly from 181 in FY23 to 964 in FY25. The company has guided that it will introduce new products only if they are expected to achieve a hurdle rate of 14%–15% RoE within two to three years.
• Distribution reach: Bajaj Finance has very wide distribution reach. It has a total of 4,263 branches. This is significantly larger compared to competitors such as Cholamandalam (~1,613 branches) and Shriram Finance (~3,220 branches). Bajaj Finance has also presence in ~49,400 consumer stores in Urban and ~62,700 consumer stores in rural areas. The company now has a presence across nearly all geographies and will now focus on deepening its penetration within these existing markets.

Key Financial Metrics

• Bajaj Finance Ltd. has consistently delivered yields on advances of approximately 16%, driven by the fact that a significant portion of its advances comprises high-yielding loans. Additionally, about 42% of its loan book has tenure of less than three years, enabling the company to benefit from higher interest rates typically associated with short-duration loans.
• The cost of funds (CoF) has remained around 7.5%, aided by Bajaj Finance’s ability to mobilize low-cost deposits. The availability of these deposits has played a key role in helping the company reduce its overall funding costs.
• Bajaj Finance has prudently managed its leverage at 4.9 times. The company has clearly articulated that if leverage approaches 7 times, it will raise equity capital through a QIP (Qualified Institutional Placement) to bring leverage back to more comfortable levels.
• In addition to strong AUM growth, Bajaj Finance has maintained superior asset quality, with its five-year average GNPA at a low 1.2%.

Future Outlook:

• AUM growth: The management is guiding for long-term AUM growth of approximately 25%. As stated earlier, the company aims to increase its market share in India’s total credit from the current 2.2% to 3–4% over time. Additionally, with several segments where its market share remains low, significant headroom exists to support AUM growth going forward.
• GNPA: The management is guiding to maintain asset quality, with Gross NPA expected to remain in the range of ~1.2% to 1.4%. As the company shifts its focus towards secured lending, asset quality is expected to remain stable at these levels.
• Profit growth: Management is guiding to deliver PAT growth of ~23% over the long term. NIMs are expected to be stable going ahead as (a) mix of advances is not changing drastically, (b) benefits from interest rate cut in cost of funds will be offset by pricing pressure from competition in select segments.
• RoA & RoEs: The Company is guiding for a healthy RoA in the range of ~4.3% to 4.7% and aims to sustain a robust RoE of ~19% to 21%.

Subsidiaries:

• Bajaj Housing Finance Limited (88.75% stake): It is registered as a non-deposit taking housing finance company with the National Housing Bank (NHB) since September 2015 to carry on the business of housing finance and categorised as Upper Layer NBFC (NBFC-UL) under Scale Based Regulations (SBR) issued by the RBI. It got listed in Sep’2024. The company’s AUM grew from Rs. 0.91 lakh crore to Rs. 1.14 lakh crore, reflecting a robust 26% year-on-year growth. Asset quality remained strong, with Gross NPA at 0.29%. Profit after tax for FY25 stood at Rs. 2,163 crore, while it delivered a Return on Assets (RoA) of 2.4% and a Return on Equity (RoE) of 12.1% for the year.
• Bajaj Financial Securities Limited: It functions as a wholly-owned subsidiary of BFL. It is registered with the SEBI, both as a stockbroker and as a depository participant. The customer franchise expanded by 40% to 9.7 lakh clients in FY25. Assets under management (AUM) grew by 15% to Rs. 20,872 crore, while profit after tax (PAT) surged 148% to Rs. 139 crore during the year.

The consolidated revenues stood at INR 21,755 Cr, an increase of 23.7% YoY (+4.6% QoQ).

Net interest income (NII) grew by 28% YoY to 7,771 Cr in Q4FY23, aided by AUM growth of 25/7% YoY/QoQ  to 2,47,379 Cr, primarily driven by urban B2C growing 29% YoY and SME lending growing 35% YoY. Asset quality has improved with Q4 GNPA and NNPA ratio declining to 0.94% and 0.34% from 1.14% and 0.41%, respectively, in Q3FY23.

Strong quarter driven by AUM momentum.

Bajaj Finance Ltd

Market Cap 357,567Cr
CMP 5,906
P/B 7.4

Check 10 year X-ray here

Key Highlight –

·        Urban B2C (20% of advances) grew by 29%, Rural B2C (8% of advances) grew by 20%, SME Lending (13% of advances) grew by 33%, while housing segment (32% of advances) grew by 26%.

·        Deposits at 21% of borrowing at 42,984 Cr.

·        GNPA & NNPA stood at 1.14% and 0.41% as of Q3 FY23 vs. 1.17% and 0.44% in Q3 FY22.

·        Provisions declined by 20% to 841 Cr.

·        Company acquired approximately 41.5% stake in Snapwork Technologies Private Limited for 92.74 Cr

Management Outlook –

·        Bajaj Finance to launch lending in New Auto Loans in Q2 FY24, Micro Finance in Q4 FY24 and Tractor financing in Q1 FY25.

·        Management aimed to attain market share of 3% of payments GMV, 3-4% of total credit and 4-5% of retail credit.

·        Management expects to grow advances at 25-27% in medium term.

Bajaj Finance | Market Cap 3,00,206

CMP 4,982 | P/B 8.8x TTM, P/E 50x FY22

Recommendation | Sell on elevated valuation

Results: Bajaj Finance reported flat Net Interest Income* and while operating profit declined by 5%. Total AUM^ grew by 4% year on year.

Click here for 10 year Xray

Key highlights:

• Segment-wise AUM performance: Auto, consumer and sales finance saw decline while Rural B2C and Securities lending and commercial lending saw good growth.
• Mortgage growth was 7% including Bajaj Home Finance 
• Mortgages form 33% of total loan book, while consumer B2C and SME lending form 20% and 13% respectively.
• Asset quality improved to Gross NPA (Stage 3 assets) 1.8% versus 1.9-3.7% in last three quarters. Debt coverage ratio stands at 58% currently.

Outlook: AUM growth is back across all businesses except in auto finance. Margin profile in all lines of businesses was steady at pre-COVID levels other than mortgages. All disbursement are back to pre-covid levels except Auto. Management believes that it will go back to growth rate of 20-25% loan book and ROE of 20% in FY22 even assuming 1.5-2% in NPA provisioning. It doesn’t anticipate further stress from renewed lockdown as it is better equipped to disburse and collects loans digitally.

The company is in the process of launching market place app for loans, insurance and investments. This will generate leads and fee income.

MoneyWorks4me Opinion: Bajaj Finance is growing its AUM at a healthy rate however it faced higher NPA which dented its growth rate in loans. Recent quarter gives us confidence that high provisions and improved collection efficiency will reduce NPA going forward. 

Current price factors very high growth rate beyond 30% CAGR over next 5 years. Hence we recommend Sell purely on valuation. Investing/holding at elevated valuation exposes you to risk of low returns. 

Post pandemic we have a weak outlook for discretionary spends and hence we believe achieving very high growth rate is difficult.

Bajaj Finance is at Rs. 1,50,000 Cr loan book so growing at more than 25% is a tough ask. This increases the risk of low returns in medium term. 

* Net Interest Income- Total interest earned by a company on loan minus Total interest that it expended on its borrowings.

^AUM- Assets under management

**GNPA & NNPA- Gross Non-Performing Asset & Net Non-Performing Asset

Bajaj Finance | Market Cap 3,00,206

CMP 4,982 | P/B 8.8x TTM, P/E 50x FY22

Recommendation | Sell   

Results: Bajaj Finance reported year on year decline of -5% both in Net Interest Income* and Total Income. Total AUM^ grew by 1% year on year.

Click here for 10 year Xray

Key highlights:

• Segment-wise AUM performance: Consumer loans (-1%), SME loans (1%) and Mortgage Loans (6%). Auto loans declined by -4%.
• Bajaj Housing increased its AUM by 18% and NII increased by 15% year on year. The year on year growth in home loans was 14% and Loans against property was 24%.
• There was deterioration in asset quality during the quarter. Gross NPA was 2.86% (vs 1.61% in Q4FY20) and Net NPA was 1.22% (vs 0.7% in Q4FY20). 

Outlook: AUM growth is back across all businesses except in auto finance. Margin profile in all lines of businesses was steady at pre-COVID levels other than mortgages. The management expects disbursement to reach pre-covid levels in next 2 quarters.

The company is in the process of launching Bajaj Pay, an integrated payment solution comprising of UPI, EMI card and credit card to its customers.

Bajaj Finance is growing its AUM at a healthy rate however; there is likely to be decline in the asset quality post moratorium. The potential risk to the high-growth trajectory is making risk-reward unfavourable. Considering the aftermath of the pandemic situation, we have a weak outlook for discretionary spends and hence we recommend wait until we see a revival in overall economic situation. We will recommend buying the stock if stock factors in moderate long term growth rate like private banks. Current price factors very high growth rate beyond 30% CAGR over next 5 years. We recommend Sell. Investing/holding at elevated valuation exposes you to risk of low returns, with exceptions. Base rates are very few companies manage to grow at more than 20% CAGR for more than 5 years. When a company is growing fast, competitors rush into same segments driving down high growth of an incumbent.

* Net Interest Income- Total interest earned by a company on loan minus Total interest that it expended on its borrowings.

^AUM- Assets under management

**GNPA & NNPA- Gross Non-Performing Asset & Net Non-Performing Asset