Global investment bank Jefferies has positioned Bajaj Finance Limited as one of its premier non-banking financial company (NBFC) selections, assigning a share price target of ₹1,280. This optimistic outlook follows a roadshow where Jefferies engaged with Bajaj Finance's managing director, Rajeev Jain, and other key management personnel.
The investment bank's valuation for Bajaj Finance is based on five times its estimated book value for September 2028, reflecting a price-to-earnings ratio of 23 times and a PEG ratio of approximately 1.
Jefferies' Rationale and Price Target
Jefferies' endorsement stems from the Bajaj Finance management's expressed confidence in the company's growth trajectory and profitability for both the immediate and distant future. The management highlighted a robust near-term economic environment, evidenced by strong nominal GDP growth and healthy collections of GST and personal taxes. Furthermore, the anticipated impact of El Niño on the economy has been less severe than initially feared.
Key factors bolstering Jefferies' positive assessment include:
- Strong Demand: Expectations of sustained high demand for financial products.
- Asset Quality: Confidence in maintaining strong asset quality, partly eased by the government's credit guarantee scheme for SMEs.
- Operational Efficiencies: The ability of operational improvements to offset potential minor pressures on net interest margins.
Even with the possibility of one or two further policy rate hikes, Bajaj Finance's management anticipates favorable conditions for growth and manageable credit costs.
Long-Term Vision and Growth Strategy
Bajaj Finance is strategically leveraging current market tailwinds to enhance its resilience. Over the next decade, the company aims for a 23 percent compounded annual growth rate (CAGR) in assets under management (AUM), with profits expected to expand at an even faster pace. Management projects AUM to surge from the current ₹5 lakh crore to ₹40 lakh crore.
This ambitious growth will be supported by:
- Deeper client penetration and expanded reach.
- Introduction of new product offerings.
- Leveraging India's broader economic growth.
The company also plans to reduce its leverage by 0.25x every three years, while consistently targeting a 19-20% return on equity over the long term.
AI Integration and Operational Efficiency
Artificial intelligence (AI) stands as a critical strategic pillar for Bajaj Finance. Senior leadership dedicates approximately 20% of their time to AI initiatives, and employee engagement with internal AI bots for training and other functions is increasing significantly. Jefferies noted that Bajaj Finance is among the top users of compute capacity from leading technology vendors in India.
The integration of AI is already yielding tangible benefits, including:
- Improved staff productivity.
- Enhanced client monetization through voice-data analytics.
- Automated customer identification, reducing deflection rates.
These technological advancements, combined with moderate branch expansion (5% CAGR) and lower staff addition requirements, are expected to result in a structural annual reduction of 25-40 basis points in the cost-to-net total income (NTI) ratio, which will further support return on assets.
Leadership Succession
Bajaj Finance is also proactively addressing leadership transition. Rajeev Jain's tenure as vice-chairman and managing director is set to conclude in March 2028. The board and top management are working towards a seamless internal succession, with an announcement for the next chief executive officer anticipated around January or February 2028.