Bajaj Finance: Strong Quarter, But Valuation Challenges Remain

Bajaj Finance reported strong fourth-quarter FY26 results, with profit after tax rising 22% year-on-year to approximately ₹55.5 billion, meeting expectations. The company also forecast 22-24% Asset Under Management (AUM) growth for fiscal year 2027. While the results demonstrated operational strength, investors remain concerned about the company's premium valuation and the evolving dynamics within the Non-Banking Financial Company (NBFC) sector. The stock saw an initial uptick after the earnings release, but sustained upward movement may face challenges from these underlying factors.

Key Growth Drivers: Expanding Customer Base and New Segments

The company's core business showed continued strength. Net Interest Income (NII) grew 20% year-on-year, supported by healthy non-interest income and a decline in annualized credit costs to 1.6%. Bajaj Finance anticipates adding 15-17 million customers in FY27 by aggressively expanding branches in segments like gold loans and continuing momentum in tractor and commercial vehicle financing. This focus on areas with lower market share indicates significant growth potential. The company also proposed a final dividend of ₹6 per equity share for FY26. Shares closed at ₹930.00 on April 29, 2026, showing modest gains after the results.

Valuation Compared to Peers and Sector Challenges

Bajaj Finance currently trades at a trailing twelve-month (TTM) Price-to-Earnings (P/E) ratio of about 29.8x to 34.25x. This is significantly higher than the industry average (20-21.48x) and banking peers like HDFC Bank (around 25x) and ICICI Bank (around 22x). Competitors such as Cholamandalam Investment and Finance (P/E 27.32x) and SBI Cards (P/E 28.61x) trade at lower multiples.

The broader NBFC sector is navigating a complex environment with renewed regulatory scrutiny after a period of sector adjustments. Sector loan growth slowed to 6.6% between March and September 2024 from 18% in FY24. This moderation is attributed to economic slowdown and tighter regulations, including higher risk weights on certain loan categories and stricter guidelines on gold-backed lending. Rising funding costs also pressure net interest margins (NIMs). Despite these challenges, Bajaj Finance's FY27 AUM growth forecast of 22-24% significantly exceeds the projected sector average of 15-17% for FY26. The company's overall credit market share is around 18-19%, showing room for growth.

Risks: High Valuation and Potential Margin Squeeze

The main risk for Bajaj Finance is its high valuation multiples. Its P/E of around 31.8x is much higher than many peers and the industry average. This premium valuation means any slip in growth or margin pressure from higher costs or increased competition could lead to a significant stock price drop. Analysts at Macquarie rate the stock 'Underperform', noting FY26 growth was the slowest in 15 years (excluding the pandemic-impacted FY21) and citing challenges in maintaining profitability. Growing competition from large banks in credit cards is an ongoing threat. While asset quality has been managed well historically, gross NPAs rose slightly to 1.01% in Q4 FY26 from 0.96% a year ago, which requires attention. NBFCs' reliance on bank funding, slowed by regulatory risk weights, could limit smaller players, though larger entities like Bajaj Finance have broader funding access.

Analyst Views: Mixed, Leaning Cautious

Analyst views on Bajaj Finance are mixed but cautiously optimistic. Motilal Oswal maintains a Neutral rating with a ₹1,000 price target, citing few near-term catalysts for a stock upgrade. HSBC holds a Buy rating and ₹1,200 target, while Emkay Global downgraded to 'Reduce' with a ₹1,000 target. TipRanks shows a consensus 'Buy' rating from 35 analysts, with an average 12-month target of approximately ₹1,047. Bajaj Finance expects to continue its growth in FY27, backed by its expanding customer base and growth in new segments.