Bajaj Finance Ltd 2024-11-25

Sector: Finance Industry: Finance - Large Buy

Price@Reco: ₹ 6,685.4 Target Price: ₹ 7,750 Target Period: 12 Months Potential Returns: 15.92 %
Stock Info

Symbol BAJFINANCE
Company Overview
CMP ₹ 6,685.4
P/E Ratio (TTM) 26.92 Bajaj Finance Ltd., a subsidiary of Bajaj Finserv, is one of India’s largest non-banking financial companies. It was
Enterprise Value ₹ 7,12,005 Cr incorporated in 1987, formerly known as Bajaj Auto Finance Limited. It specializes in consumer finance, SME loans,
Market CAP ₹ 4,13,827 Cr commercial lending, and wealth management and offers fixed deposits and systematic deposit plans to customers.
52w H/L (Rs) ₹ 7768.4 - ₹ 6311.25
Bajaj Finance operates in 4,245 locations with over 2,15,800 active distribution points of sale, making it the largest lender
of consumer electronics, digital, and lifestyle products in India. Geographically, the company operates across India, with
Financial Ratios
lending locations in both urban and rural areas.
ROE (TTM) 17.71
PEG Ratio (TTM) 1.84
Net Profit Margin (TTM) 26.93
Contribution Profit Margin (TTM) 28.27
EV/EBIDTA (TTM) 20.80
Net NPA % (TTM) 0.46
Gross NPA % (TTM) 0.85
ROA (TTM) 4.26

Shareholding Pattern

PARTICULARS MAR 24 JUN 24 SEPT 24

Promoters 54.69 54.7 54.7

Share Holding
0 0 0
Pledge

FII 20.56 21.09 20.81

Total DII 14.41 14.31 15.09

Public 10.35 9.91 9.4

(Source: Company reports, Trade brains research)

Business Segments:
Indexed Stock Performance
Consumer business: In this segment, Bajaj Finance operates in consumer durable loans, digital product loans, lifestyle
product loans, lifecare financing, EMI cards, retail spend financing, 2W and 3W financing, personal loan cross-sell,
salaried personal loans, e-commerce financing, and retailer finance. Notably, in 2W, the company has disbursed
1,63,400 accounts, and in 3W, 27,800 accounts were disbursed in Q2 FY25. Moreover, Bajaj Finance has a 1,596 lending
location presence in urban areas and 1,48,000 active distribution points to date.

SME business: In this segment, the company operates in unsecured working capital loans, loans to self-employed and
professionals, business loans secured, used car financing, medical equipment financing, loans against property, new car
financing, commercial vehicle financing, and auto leasing. Further, the segment offers unsecured working capital loans
to SMEs and self-employed professionals. With medical equipment financing from Rs. 3 lakh to Rs. 6 crore for medical
professionals.

Commercial business: In this segment, the company operates in loans against securities, IPO financing, ESOP financing,
PARTICULARS BAJFINANCE NIFTY50
vendor financing to auto component manufacturers, financial institution lending, light engineering lending, specialty
chemicals lending, emerging corporate lending, and large corporate lending. The segment focused on auto ancillaries,
1M -6.43% -2.74% pharma, specialty chemicals, financial institution groups, lease rental discounting, and top mid-corporate clients in India
6M -6.23% 2.56%
and financing for short-term, medium-term, and long-term mid-market corporates.

1Y -9.29% 17.03% Rural business: The company operates in consumer durable loans, digital product loans, lifestyle product loans,
3Y -9.26% 34.11%
personal loans cross-sell, salaried personal loans, gold loans, loans to professionals, microfinance, tractor financing, and
Bharat mortgages. In rural markets, it offers a diversified range of loan products across 2,649 towns and villages,
3Y-CAGR -3.19% 10.28% supported by 57,000 distribution points. The company provides highly diversified lenders in rural markets, offering 10
loan products across consumer and SME sectors.
Analyst
Payments: In this segment, the company operates in PPI, UPI, BBPS, FASTag, Bajaj Prime Acquiring, Merchant QR, and
Anoushka Roy ([email protected])
EDC machines. Moreover, its EMI Card franchise reached 55.3 million cards, while the co-branded credit card totaled 4
Shashi Kumar million cards in force. Currently, the digital app platform has 61.67 MM net users as of Q2 FY25.

ANOUSHKA Digitally signed by ANOUSHKA

ROY
Deposits: In this segment, the company operates in retail term deposits, corporate term deposits, and systematic deposit
plans.
ROY Date: 2024.11.25 17:30:27
+05'30'
Partnerships & Services: The company offers life insurance distribution, general insurance distribution, health insurance
SHASHI KUMAR Digitally signed by SHASHI
KUMAR K N
distribution, pocket insurance, RBL co-branded credit cards, DBS co-branded credit cards, and a financial fitness report.

KN Date: 2024.11.25 17:30:54

+05'30' Subsidiaries of Bajaj Finance:

Bajaj Housing Finance Limited: This subsidiary offers salaried home loans, salaried loans against property, near prime &
affordable housing, loans against property, self-employed home loans, lease rental discounting, developer finance,
construction finance, and corporate lease rental discounting. Notably, it has 175 locations in the home loan offering to
salaried customers for an average ticket size of 46 lakh. Also, offer loans against property in 74 locations to mass
affluent and self-employed customers for an average ticket size of 60 lakh. Additionally, 15 locations are available for
lease rental discounting, and another 15 locations are offered for developer financing.
Bajaj Financial Securities Limited: This subsidiary offers trading accounts, depository services, trading financing, HNI
broking, retail broking, IPOs and OFS, distribution of mutual funds, distribution of PMS, and proprietary trading. Currently,
the subsidiary has 45 locations in HNI broking with the addition of 7,000 UHNI/HNI, for a total of 55,000 clients as of Q2
FY25. Moreover, with 70,000 trading and demat accounts. The total client base stood at 7,78,000 with 1,200 network
partners. Working with 135+ independent business advisors.

(Source: Company reports, Trade brains research)

(Source: Company reports, Trade brains research)

(Source: Company reports, Trade brains research)

Investment Rationale
Strong AUM growth: Bajaj Finance reported a robust 29% year-on-year growth in its Assets Under Management (AUM),
reaching Rs. 3,74,000 crores. Notably, the company added Rs. 19,732 crores to its AUM in Q2 FY25, demonstrating a
strong upward trajectory. This impressive performance was primarily driven by growth in several key segments,
including mortgages, urban B2C loans, SME and commercial lending, urban sales finance, and loans against securities.
Furthermore, the company successfully added 9.7 million loans in Q2 FY25. This combination of strong segment
performance and loan additions highlights Bajaj Finance's robust position in the market.

Strategic focus on new business lines: Bajaj Finance is strategically expanding its non-Bajaj auto two-wheeler financing
segment. It plans to disburse 500,000 accounts this year and scale up to 720,000 accounts by FY26. This growth will
fully replace the AUM from Bajaj Auto products by FY27. Demonstrating a strong focus on diversifying and strengthening
new business lines for sustainable growth.

Customer growth and strengthening its workforce: Bajaj Finance's is targeting a 100 million customer base by FY25,
with its current base standing at 92.1 million. The company's ability to leverage cross-selling and digital transformation
makes it an attractive investment. Furthermore, they have focused on strengthening capacity planning, with 2,000 new
staff adding in deeper geographies.

Geographic Expansion: The company is significantly expanding its geographical footprint, with 1,596 urban lending
locations and 2,649 rural lending locations, enabling it to tap into a wider and more diverse customer base. The broader
footprint strengthens Bajaj Finance's ability to capture demand in underpenetrated markets, driving sustained growth
and value.

Leveraging Technology: Bajaj Finance is driving growth through operational optimization and strategic tech investments,
especially in GenAI, to boost productivity and reduce costs. The company is seeing strong momentum in digital
technology, particularly in point-of-sale offerings across consumer electronics, lifestyle, and e-commerce. With a 9%
rise in units sold and a 21% increase in transaction counts during the festival season, Bajaj Finance is effectively
leveraging digital platforms to capture demand. Moreover, the company is looking to focus on continuous transformation,
product improvements, and digital advancements to maintain its competitive edge.

Credit Cost Management: The management is optimistic about credit costs and estimates the net loan loss to average
assets will be between 2% and 2.05% for FY25, with improvements projected in the second half of the fiscal year. The
Gross loan loss to average AUF was 2.16% in Q2FY25. Further, the company is also looking to optimize its operating
expenses, with the OPEX to net total income ratio improving to 33.2% from 34% during the same period last year.

Risks and concerns

Credit Risk: BFL faces significant credit risk due to potential defaults and rising non-performing assets, especially in
rural lending segments. Despite robust risk management frameworks, increasing loan delinquencies could adversely
affect financial performance.

Liquidity Risk: Although BFL maintains a strong liquidity management framework, reliance on various funding sources
poses liquidity risks, particularly in adverse market conditions. Effective management is crucial to ensuring the
availability of funds to meet obligations.

Operational Risk: The complexity of BFL’s operations, including reliance on technology and processes for underwriting
and debt recovery, exposes the company to operational risks. Any failures in internal processes or systems could result
in financial losses and reputational damage.

Industry Overview

India's NBFC asset under management industry is valued at Rs. 47 trillion in FY2024 and is projected to reach Rs. 50
trillion by FY2025 at a growth rate of 13-15%, as per ICRA. Furthermore, the small-ticket Loan Against Property (LAP)
stands at an estimated Rs. 1 trillion in March 2024 and is expected to grow at a strong rate of 20–25% till 2029. As per
ICRA, the NBFC segment is expected to register an overall credit expansion of around 12% in FY2025. This growth is
driven by a significant unmet demand for credit, indicating a need for more accessible financing options in this segment.
The NBFC retail credit is expected to increase by 13 to 15% CAGR in the next 3 years.

NBFCs have improved asset quality post-pandemic, with the GNPA ratio falling to 4.0% by March 2024. Vehicle loans
have the highest GNPA at 5.0%, but other retail loans remain below 3%. Private NBFCs saw a GNPA reduction in
industrial advances, with the overall capital position improving, marked by a capital adequacy ratio (CRAR) of 26.6% in
March 2024. The sector's profitability, asset quality, and credit growth remain robust, positioning NBFCs for continued
expansion amidst rising retail credit demand.

(Source: ICRA, Infomerics, Trade brains research)

CONCALL HIGHLIGHTS:

This year, management foresees between 15 to 16 million new customer additions in FY25, which is marginally higher
than last year with 14 million. The customer base expanded by 4 million to 92.1 million.
Gross loan losses and provisions were Rs. 1,934 crores, with management projecting a net loan loss ratio of around 2
to 2.05% for FY25.
Profit Before Tax rose 14% to Rs. 5,401 crores, while Profit After Tax increased 13% to Rs. 4,014 crores, despite
elevated loan losses. Net Interest Income increased 23% to Rs. 8,838 crores, indicating a stable NIM, with net total
income up 24%.
The liquidity buffer was Rs. 20,200 crores, though the cost of funds rose slightly to 7.97%.
Management continues to pull through both by optimizing on the one hand and continuing to invest in technology,
which is mainly GenAI, to improve productivity and reduce operation expenses.
The debt management infrastructure gives confidence that credit costs should improve to 185-195 basis points by Q4
FY25, assuming the current stable environment continues.
The management foresees that the rural B2C portfolio may grow by 12% to 14% growth on a year-on-year basis, then
next year could start to grow between 23% and 25%.
Employee headcount stood at 59,400 people on adding 4,007 staff in Q2 FY25.
The company received a Baa3/P long-term rating from Moody’s, strengthening its credit profile.
As of Q2 FY25, the new business is disbursed between 65-70 crores of volumes a month in tier-II and tier-III regions.
The company maintains a liquidity buffer of ₹20,200 crores, with the cost of funds at 7.97%, expected to have peaked.
Deposit book grew 21% to ₹66,131 crores, though growth was slower due to intense competition and alternative
funding sources.

Outlook and Valuation

PROFIT & LOSS STATEMENT (EXTRACT)

Particulars (in Cr) 2,022 2,023 2,024 2025E 2026E

Interest income 27,270 35,549 48,307 55,553 64,441

Interest Expended 9,748 12,560 18,725 22,470 26,739

Net Interest Income (NII) 17,522 22,989 29,582 33,083 37,702

Other operating revenue 4,363 5,862 6,663 7,329 8,062

Other income 8 8 13 14 15
 Total income 31,640 41,418 54,983 62,896 72,518

Employee expenses 3,590 5,100 6,396 7,355 8,385

Other operating expenses 3,995 5,042 5,929 6,522 7,174

Operating Profits before Provisions & writeoffs 14,307 18,716 23,933 26,549 30,220

Provisions & writeoffs 4,803 3,190 4,631 5,557 6,502

PBT 9,504 15,526 19,302 20,992 23,718

Tax expense 2,476 4,020 4,858 5,248 5,930

PAT 7,028 11,506 14,444 15,744 17,789

PAT Margin (%) 22% 28% 26% 25% 25%

Profit attributable to the owners of the company 7,028 10,290 12,644 15,744 17,789

Weighted average number of shares outstanding 60 54 53 53 53

EARNINGS PER SHARE 117 191 237 295 333

(Source: Company reports, Trade brains research)

BALANCE SHEET (EXTRACT)

Particulars (in Cr) 2,022 2,023 2,024 2025E 2026E

EQUITY AND LIABILITIES

Equity 121 121 124 124 124

Reserves and surplus 43,592 54,251 76,572 86,526 97,774

Debt securities 76,223 86,845 118,000 135,699 157,411

Deposits 30,800 44,666 60,151 69,174 80,241

Borrowings 54,364 81,549 111,617 125,092 138,856

Other liabilities and provisions 7,407 7,794 9,278 10,948 12,919

TOTAL EQUITY & LIABILITIES 212,505 275,226 375,742 427,563 487,326

ASSETS

Cash and cash equivalents 3,407 1,551 4,035 4,236 4,448

Bank balances other than cash and cash equivalents 273 2,754 6,590 3,442 4,131

Loans 191,423 242,269 326,293 375,237 427,771

Investments 12,246 22,752 30,881 35,513 40,485

Goodwill 3 3 3 3 3

Fixed assets 1,283 1,677 2,358 2,712 3,107

Other assets 3,870 4,221 5,582 6,419 7,382

TOTAL ASSETS 212,505 275,226 375,742 427,563 487,326

(Source: Company reports, Trade brains research)

Summary
We initiate a ‘Buy’ rating on the stock with a target price of Rs 7,750 per share based on FY25/26 EPS and PE multiples.
The company has shown a strong AUM growth, cost optimization and has strong expansion plans. A good accumulation
zone for the stock remains at Rs 6,300 to Rs 6,600 levels.

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Registered Office: H/O Suman Sinha, East Laxmi Nagar, Khemnichak, Sampatchak, Patna, Bihar - 800027
Corporate Office: No 1212, SBM Fortune, First Floor, 22nd Cross, Club Road, Sector - 3, HSR Layout, Bengaluru - 560102.
Compliance officer: R Venkatesh Prabhu. Email id : [email protected], Contact No. +91 63668 69465