Nomura’s upgrade of Bajaj Finance reflects growing optimism amid strong Q3 results

Bajaj Finance Limited, a leader in India’s non-banking financial services sector, has received an upgraded rating from Nomura, moving from ‘Neutral’ to ‘Buy.’ Accompanying this upgrade is a revised price target of ₹8,560, significantly higher than the previous estimate of ₹7,250. This shift in Nomura’s outlook underscores Bajaj Finance’s robust third-quarter performance and its strategic growth trajectory.

A Record-Breaking Quarter for Bajaj Finance

Bajaj Finance’s third-quarter results for FY2025 revealed remarkable financial progress. Its Assets Under Management (AUM) surged by 28% year-on-year, reaching ₹398,000 crore as of December 31, 2024. This growth represents a significant leap from ₹310,968 crore in the previous year, bolstering investor confidence.

Customer acquisition has also hit record highs. Bajaj Finance onboarded 5.03 million new customers during the quarter, raising its total customer base to 97.12 million—a 21% increase from December 2023. The company booked 12.06 million new loans in Q3FY2025, a 22% rise from the 9.86 million recorded in the same quarter last year.

Additionally, the deposits book witnessed a healthy 19% growth, reaching ₹68,800 crore compared to ₹58,008 crore a year ago. This expansion reflects the company’s ability to attract depositors through competitive interest rates and financial stability.

Why Nomura Upgraded Its Outlook

Nomura’s analysts identified several key factors behind the positive upgrade. The firm pointed to Bajaj Finance’s balanced loan portfolio, which includes a mix of secured and unsecured loans, as a strong foundation for sustainable growth. Additionally, the company’s strategic focus on leveraging technology to improve operational efficiency and customer experience played a crucial role in enhancing its financial performance.

Projections for earnings per share (EPS) compound annual growth rate (CAGR) over FY2025–27 stand at an impressive 29%, up from the earlier estimate of 20% for FY2023–25. Nomura also foresees consistent returns, with Return on Assets (RoA) averaging 4.1% and Return on Equity (RoE) at 21% during FY2026–27.

Broader Market Sentiment

The optimism around Bajaj Finance extends beyond Nomura. Bank of America reaffirmed its ‘Buy’ rating with a target price of ₹8,800, citing robust AUM growth and improved net interest margins. Jefferies, meanwhile, has set a target price of ₹9,400, highlighting strong net interest income and loan growth.

While analysts are largely bullish, caution remains regarding certain risks. Stress in Bajaj Finance’s personal loan portfolio and the potential for slower-than-expected AUM growth are key areas of concern. Nomura has advised monitoring these factors closely, as they could impact the company’s profitability in the medium term.

Stock Performance and Future Outlook

Following the release of its third-quarter update, Bajaj Finance’s stock gained 2.5% on January 6, 2025, closing at ₹7,599 on the Bombay Stock Exchange. Despite this upward movement, the stock remains below the revised price target, offering an attractive potential upside for investors.

The consensus among analysts polled by Capital IQ suggests an average target price of ₹8,230, reflecting an 11% upside from the current stock price. Price targets across firms range widely, from ₹6,157 to ₹10,000, highlighting varied levels of optimism about Bajaj Finance’s growth prospects.

Expert Analysis

Bajaj Finance’s consistent performance and Nomura’s revised outlook signal the company’s strong position in India’s financial sector. Its ability to adapt to market dynamics, coupled with strategic investments in technology and customer acquisition, sets the stage for continued growth. However, cautious investors should keep an eye on emerging risks that could impact future earnings.