Strong AUM Growth Projected

Bajaj Finance is poised for significant growth in its Assets Under Management (AUM), with analysts forecasting increases of 23% for FY27 and 22% for FY28. This expansion is supported by strong performance in areas like automotive and gold loans, and a target to acquire 15-17 million new customers by FY27. The company's Q4 FY26 results showed this momentum, with profit after tax jumping 22% year-on-year to ₹5,553 crore. AUM reached ₹5.09 lakh crore by March 31, 2026, and net interest income grew 20% to ₹11,781 crore in the quarter, demonstrating its ability to scale and reach new customer groups.

Efficiency Gains Versus Funding Costs

Bajaj Finance aims to offset potential margin compression by using its financial technology (FINAI) to lower operating expenses. An estimated 30 basis point reduction in Opex for FY27 is expected to boost profitability. However, rising bond yields present a challenge, likely increasing funding costs and impacting Net Interest Margins (NIMs). While asset quality has improved and credit costs fell to 1.65% in Q4 FY26, managing funding costs against loan growth will be key. Non-banking financial companies (NBFCs), though growing faster than banks, face tougher funding access and have seen slower bank funding.

Analyst Targets and Valuation Metrics

Prabhudas Lilladher has upgraded Bajaj Finance to 'BUY' with a ₹1,100 price target. The stock currently trades at a TTM P/E of 29.8x to 34.01x. This valuation is significantly higher than traditional banks like Indian Bank (around 10.30-10.86x) and the banking industry average (12.6x). Compared to NBFC peers, Bajaj Finance's P/E is similar to Cholamandalam Investment (31.67x) and L&T Finance (32.67x), but higher than Jio Financial Services (25.5x). Other analysts also remain positive: Jefferies has a 'Buy' with a ₹1,210 target, and Morgan Stanley rates it 'Overweight' with a ₹1,120 target. Overall, 35 analysts recommend 'OUTPERFORM' with an average target of ₹1,047.17.

Potential Risks to Monitor

Several risks require attention. Profitability could be significantly impacted if NIMs decline further due to persistent rising yields or increased competition for funding among NBFCs. Unlike banks, NBFCs lack access to cheaper deposit funding, relying instead on more expensive market borrowings. While gross NPAs slightly increased to 1.01% in Q4 FY26, a continued rise or issues in specific loan types, such as unsecured personal loans or microfinance, could pose problems. Bajaj Finance's P/E has varied widely, from 76.8x in March 2021 to 31.5x in March 2023. Its current valuation, though below its 10-year median of 43.19x, relies heavily on continued earnings growth. With a market cap around ₹5.8 lakh crore, its dependence on wholesale funding and the cyclical nature of lending present ongoing risks distinct from stable deposit-taking banks.

Analyst Consensus and Outlook

Bajaj Finance's strategy of growing AUM and using technology for efficiency drives analyst optimism. Most brokerages maintain 'Buy' or 'Overweight' ratings with targets above the current stock price, reflecting a favorable outlook. The company is expected to maintain its growth path. However, close monitoring of funding costs, NIM trends, and asset quality will be vital for sustaining its current valuation as economic and regulatory conditions change.