Bajaj Finance share price falls after margin warning in earnings call; Bullish analysts see 33% upside

Shares of Bajaj Finance Ltd. can rise up to 33% from current levels, according to bullish analysts who track one of India's largest non-bank lenders.

The stock fell Wednesday, October 21, in response to its September quarter results, which were reported after market hours on Monday.

Bajaj Finance's Net Interest Income grew by 23.6% from last year to ₹13,335 crore, while its net profit saw growth of 28.7% on a year-on-year basis to ₹6,367 crore.

Operating profit for the quarter stood at ₹10,699 crore, a growth of 23.2% on a year-on-year basis.

Bajaj Finance's gross NPA increased to 1.06% from 0.96% in the June quarter, while Net NPA stood at 0.42% from 0.39% sequentially.

The management has made additional macroeconomic provisions worth ₹337 crore during the second quarter.

During the earnings call, the Bajaj Finance management said that there has been an increase in stage 2 and stage 3 assets due to transitional gold loans, but despite that, the management does not see any significant impact to its credit costs.

Excluding additional provisions, reported credit cost at 1.56% from 1.32% last year. The management expects the credit costs for the second half of the financial year to remain near similar levels.

Bajaj Finance is also monitoring monsoon-related stress across 720 districts, and is selectively reducing its MFI and B2B exposure.

The company also recently announced a fund raise of up to ₹17,500 crore through a QIP and the issue of convertible warrants to its promoters.

With regards to Bajaj Housing Finance, the company said that there is no immediate stake sale planned as of now, as they want to allow more time for the shift towards prime and near-prime customers.

The management has also warned that the margin compression could worsen in the second half of the financial year due to the repo rate hike by the Reserve Bank of India and could exceed the 10-15 basis points guided for earlier, after a five basis points compression already seen in the first half.

On the positive side, the management has raised its full-year AUM growth guidance to 26% to 27% from 22% to 24% earlier, while reiterating its medium-term AUM growth guidance of 23% to 25%. The management has also reiterated its target of reaching ₹11 lakh crore in Assets Under Management by financial year 2030.

Bajaj Finance Shares A "Buy" Or "Sell"?

Global investment banking firm HSBC has maintained its "buy" rating on Bajaj Finance with a price target of ₹1,270. This implies an upside potential of 33% from current levels.

HSBC wrote in its note that Bajaj Finance is likely to find enough levers to offset the potential revenue headwinds and protect its Return Ratios over financial year 2028 and 2029 respectively.

A potential capital raise will also be positive for growth and profitability, HSBC's note said.

Nomura's "buy" rating on Bajaj Finance also comes with a similar price target of ₹1,270.

The firm has trimmed Bajaj Finance's Earnings Per Share (EPS) estimates by 2% to 3% and it now expects Return on Assets (RoA) and Return on Equity (RoE) to be 4.2% and 19.9% over financial year 2028 and 2029 respectively.

JPMorgan remains "overweight" on Bajaj Finance with a price target of ₹1,260.

A guidance upgrade for AUM, continuation of benign asset quality and focus on RoA preservation despite higher funding costs are the key things that stood out for JPMorgan from Bajaj Finance's results.

The firm sees Bajaj Finance as a best in-class earnings compounder supported by a combination of healthy loan growth, operating leverage gains from ongoing AI initiatives and a strong track record of managing credit costs, which should support its results to grow at a Compounded Annual Growth Rate (CAGR) of 21% over financial year 2027-2029.

CLSA also maintained its "outperform" rating on Bajaj Finance with a price target of ₹1,300.

A total of 39 analysts have coverage on Bajaj Finance, of which 30 have a "buy" rating, five say "hold" and four have a "sell" rating on the stock. The consensus estimates of price targets implies an upside potential of 23.3% from current levels.

Shares of Bajaj Finance are trading 2.3% lower on Wednesday at ₹935. The stock had declined another 1.5% on Monday as well ahead of its earnings announcement.