Global brokerage firm Nomura has maintained its 'Buy' rating on Bajaj Finance Ltd (BAF) and significantly raised its target price to Rs 1,270, indicating a potential 18% upside for the stock. This revised outlook comes even as the company navigates a complex financial landscape marked by regulatory scrutiny and heightened competition.
Nomura's Positive Outlook Amidst Market Dynamics
Nomura projects that Bajaj Finance will achieve a robust 24-26% growth in assets under management (AUM) by fiscal year 2027. This optimistic forecast underpins the brokerage's decision to raise its target price, despite acknowledging existing pressures in the market.
The firm has also adjusted its financial models, increasing its FY27 AUM growth estimate to 25% year-on-year and lowering credit cost assumptions by 4-11 basis points across FY27 to FY29. Consequently, Nomura has raised its net profit estimates for Bajaj Finance by 3% over the same period, rolling its valuation forward to September 2027.
Key Drivers for Bajaj Finance's Growth
- Strong AUM Projections: Nomura anticipates consistent growth in AUM, driven by strategic initiatives and market positioning.
- Reduced Credit Costs: Lower credit cost assumptions contribute positively to the revised profit estimates.
- Valuation Roll-Forward: The updated valuation to September 2027 reflects a forward-looking positive sentiment.
Navigating Regulatory Headwinds and Competition
Despite the positive rating, Nomura highlighted several challenges facing Bajaj Finance. Discussions between non-banking financial companies (NBFCs) and the Reserve Bank of India (RBI) are ongoing, particularly concerning the definition of 'revolving credit.' The brokerage emphasized that clarity on this regulation is crucial, noting that the RBI Deputy Governor has indicated openness to suggestions and practical considerations, while reiterating that revolving credit was not traditionally permitted for NBFCs.
Furthermore, competition in the personal loan segment remains elevated. Bajaj Finance's urban personal loan growth has already shown signs of slowing, dropping below 20% by the third quarter of FY26. While BAF's personal loan book is substantial—equaling the combined books of the next nine NBFCs—many fintech platforms and other NBFCs are rapidly expanding their presence in this space.
Management's Strategic Response
Bajaj Finance's management is actively addressing these challenges. While consolidated AUM growth in Q2 FY27 might face headwinds due to regulations on flexi loans and competition, the company plans to scale up its gold loan business. A recovery in MSME (Micro, Small, and Medium Enterprises) loans from Q3 FY27 is also expected to bolster growth, helping to achieve the projected 24-26% year-on-year AUM growth in the closing quarter of FY27. Management had previously guided for 22-24% AUM growth for FY27 during its Q4 FY26 results conference call.
On Friday, Bajaj Finance shares were trading slightly lower at Rs 1,093.70, a marginal decrease of 0.12%. However, the stock has demonstrated strong performance over the past six months, gaining 32%.