Bajaj Finance operates in a structurally strong NBFC space with high growth, but faces emerging risks from tighter regulation, rising credit costs in unsecured loans, and rich valuations. [1][2][3][4][5] Overall business quality and profitability remain best‑in‑class, but current pricing embeds high expectations, so it is more “hold/accumulate on corrections” than obvious deep value. [6][7][3][8][9]

## Sector view: Indian NBFCs

- NBFCs are expected to grow their loan books in mid‑teens in FY26 on the back of GST‑driven formalisation, healthier liquidity, and robust consumption/SME demand. [3][4]
- The RBI has tightened rules (digital lending, first‑loss guarantees, unsecured exposure norms) and has even imposed and later lifted targeted restrictions on some large NBFCs, including Bajaj Finance, which increases compliance costs but improves sector resilience. [2][10]
- Positive triggers: continuing credit penetration, falling cost of funds as rate cycle eases, and banks increasingly co‑lending with strong NBFCs. [3][4][8] Negative triggers: fresh RBI curbs on specific products (BNPL, unsecured consumer), further rise in credit costs, or funding squeeze in any macro shock. [2][4][5]

## P&L: last 5 years (consolidated)

- Net total income grew from about ₹31.6k cr in FY22 to ~₹69.7k cr in FY25 and ~₹76k cr TTM, implying >25% CAGR; PAT rose from ~₹7.0k cr to ~₹16.8k cr, though FY25 profit growth (~16%) lagged AUM and NTI growth due to higher credit costs. [1][7][9][6]
- Financing margin remained strong but peaked around FY23–FY24 and eased slightly in FY25 as mix shifted more to unsecured and competitive pressure rose; credit cost jumped in FY25 (loan‑loss provisions up ~72% YoY) as management proactively provided against macro and unsecured stress. [7][11][8][5]
- Positives: very high growth in AUM, NTI and pre‑provision operating profit; high RoA (~4.5%) and RoE (~19%) sustained despite provisioning step‑up; diversified product and customer base. [1][7][3][12] Negatives: visibly rising credit costs, particularly in personal loans/consumer unsecured; some operating de‑leveraging risk if growth slows but opex investments stay high. [7][11][5][8]

### Patterns and basic growth extrapolation

- Over 3–5 years, NTI and PAT growth have broadly sat in the 20–30% band, with FY25 a “mixed” year of strong AUM/volume but subdued profit growth due to credit costs. [1][7][3][9]
- If management executes and credit costs normalise toward long‑term guidance (~1.8–2.0%), a reasonable base‑case is mid‑20s AUM/NTI growth and high‑teens to low‑20s PAT CAGR over the next 3–4 years; downside risk is mid‑teens PAT growth if stress in unsecured continues. [7][11][5][8]

## Balance sheet: capital, leverage, asset mix

- Total assets rose from ~₹212k cr in FY22 to ~₹466k cr in FY25 and ~₹510k cr by Sep‑25, funded mainly by borrowings (₹165k cr → ₹361k cr → ~₹397k cr), with strong retained earnings; net worth (equity + reserves) increased to over ₹96k cr by FY25. [1][7][6]
- Capital adequacy remains robust; recent quarters show total CAR around low‑20s% with Tier‑I above 20%, giving headroom for growth even after increased provisions. [7][13][8]
- Positives: diversified borrowing profile (bank lines, NCDs, deposits), rising share of retail deposits, strong capitalisation, and no aggressive related‑party exposures highlighted in public documents. [1][7][11][3] Negatives: balance sheet is inherently leveraged (NBFC model), and growth has been rapid in higher‑yield segments that are more sensitive to cycles. [7][4][5]

## Cash flow trends

- As usual for a lending institution, reported operating cash flow is often negative in high‑growth years because loan disbursements exceed repayments, while financing cash flows are large positive as borrowings fund the book. [1][6]
- Over FY21–FY25, there are repeated patterns of: large negative “operating” cash from loan growth, significant positive cash from financing (debt, deposits), and relatively modest investing outflows (technology, fixed assets, investments). [1][6]
- No obvious red flag such as persistent negative net cash without corresponding AUM growth; net cash flow oscillates around zero with occasional small positives, which is typical for fast‑growing NBFCs. [1][6][3]

## Key ratios and trends (5‑year focus)

- RoE has generally been around 19–23% over the past decade; FY21 dipped due to Covid, but FY22–FY25 stayed close to 19–23%. [1][7][3]
- Asset quality: GNPA and NNPA remain low (roughly ~1.2% and 0.6% at Q2 FY26 consolidated), but both have inched up from pre‑FY23 levels, reflecting pressure in some unsecured portfolios; provision coverage on Stage‑3 is strong (~50%+). [7][13][5][8]
- Funding and leverage: debt and deposits have grown broadly in line with AUM; deposits now make up about one‑fifth of consolidated borrowings, improving funding diversification but creating more ALM and regulatory scrutiny. [1][7][11]
- Other ratio themes:  
  - Interest coverage is adequate but not “lazy”; growth is funded aggressively, so maintaining spreads and low credit cost is critical. [1][3]
  - Reinvestment is structurally high (bulk of CFO effectively reinvested into loans), which is normal for a compounding lender. [1][7]
  - Classic manufacturing ratios (inventory turnover, gross‑block turnover) are largely irrelevant; instead focus on AUM growth, cost‑to‑income, NIM, credit cost, RoA and RoE, all of which remain among the best in the NBFC universe. [1][3][8]

### Simple table – quality vs risk

| Dimension        | Trend / Level (last few years) | Comment |
|-----------------|---------------------------------|---------|
| RoA             | ~4.5% FY25                     | Very strong for a lender. [7][8] |
| RoE             | ~19–23%                         | High but moderating vs peak. [1][7] |
| AUM growth      | ~24–26% recent                  | Still high, guidance now 22–23%. [7][5][8] |
| GNPA / NNPA     | ~1.2% / 0.6% Q2 FY26           | Low but rising vs earlier. [13][5] |
| Credit cost     | Elevated FY25, guided ~1.85–1.95% | Key swing factor for earnings. [7][8] |
| Capital adequacy| ~21% total, Tier‑I >20%        | Comfortable headroom. [13][8] |

## Investor presentations & strategy (recent quarters)

- The latest FY25 and Q1–Q2 FY26 decks show consistent themes: building a diversified granular franchise (consumer, SME, commercial, rural, mortgages), scaling digital platforms (Bajaj App, Pay, EMI Card), and pushing cross‑sell to a 100m+ customer base. [1][11][12]
- Management had earlier spoken of 25–27% AUM growth as a medium‑term aspiration; recent guidance has been toned down to around 22–23% amid asset‑quality and macro concerns, which shows some prudence but also implies slightly lower operating leverage than bulls hoped. [7][11][5][8]
- Revenue mix: high share from consumer B2C and EMI/PL products, rising share from mortgages and SME, plus fee income from cross‑sell and payments; this mix drives strong NIMs but increases sensitivity to unsecured cycles. [1][11][12]
- EBITDA/operating metrics: cost‑to‑income has been improving as tech investments scale; recent presentations highlight opex‑to‑NTI dropping a couple of percentage points over FY23–FY25, giving scope for operating leverage even with moderated growth. [11][8]

## Concall takeaways (last few quarters, high level)

- Management commentary stresses:  
  - Maintaining RoA >4% and RoE high‑teens to low‑20s as overarching objective. [7][8]
  - Calibrated growth in unsecured personal and SME where stress is emerging, and more focus on secured, granular lending (housing, gold, small business). [13][5][8]
- Headwinds: higher credit costs in some unsecured pools, incremental RBI scrutiny after digital‑lending issues, and intense competition from banks and fintechs in BNPL/PL. [2][5][8]
- Tailwinds: scale benefits, digital origination, strong brand, long data history for underwriting, and ability to raise capital/funding at fine spreads. [1][7][3][8]
- No major adverse disclosures on large acquisitions or funding bottlenecks; capex is primarily in technology and distribution expansion rather than large fixed‑asset projects, so capacity‑utilisation is more about people/tech bandwidth than plants. [1][11][12]

## Annual report / governance & red flags

- FY25 annual report and independent analyses highlight strong internal controls, detailed disclosure on segments, risk management, expected‑credit‑loss methodology and regulatory compliance; credit rating agencies continue to assign high ratings to Bajaj Finance’s debt, indicating comfort on governance and asset quality. [1][14][7][3][9]
- The main “soft” concern is aggressive growth in unsecured and some earlier RBI action on digital practices, but there is no clear evidence of accounting manipulation, evergreening, or off‑balance‑sheet leakage in the publicly available material. [7][2][3][9]
- Positive governance markers: conservative provisioning step‑up in FY25 even at the cost of near‑term profit, transparent guidance cuts when needed, and consistent risk disclosures around unsecured exposure. [7][11][8]

## Management integrity: qualitative matrix (view from public data)

- Delivery vs guidance: Historically strong at hitting AUM and profitability targets, but recently management has trimmed growth guidance to reflect reality, which is a positive from an integrity standpoint. [7][11][5][8]
- Communication: Quarterly presentations and concalls are detailed, with clear metrics and upfront discussion of stress areas, and analysts broadly view disclosure quality as high. [1][11][8]
- Conduct with regulator: The prior RBI restrictions on certain digital products are a negative mark, but the quick remediation and subsequent lifting of curbs show willingness to align with regulation. [2][3][15]

On a 0–10 qualitative integrity scale (based only on public information, not on any inside assessment), management would reasonably score around 7.5–8: strong long‑term execution and disclosure, with a small haircut for the earlier regulatory run‑ins and aggressive growth in riskier portfolios. [7][2][3][8]

## News, competition, and ValuePickr sentiment

- Recent news flow focuses on: elevated credit costs, slight deterioration in asset quality metrics, cut in loan growth guidance, and share‑price volatility, but the sell‑side consensus views these as cyclical/containable rather than structural damage. [13][5][8][15]
- Relative to peers, Bajaj Finance still trades at a premium P/E and P/B versus other large NBFCs (Shriram Finance, Cholamandalam, L&T Finance), justified by higher RoA/RoE and better growth, though the valuation gap has narrowed somewhat after corrections. [1][3][15]
- ValuePickr and similar forums have long regarded Bajaj Finance as a high‑quality structural compounder, with recent posts more focused on whether the current growth‑credit‑cost trade‑off and valuation leave enough margin of safety; discussions emphasise strong franchise and execution but caution on leverage to consumer credit cycles. [1][3]

## Growth triggers and operating leverage

- Operating leverage: as tech platforms, data infrastructure, and distribution are already scaled, incremental volume can flow through at better cost‑to‑income, particularly if AUM growth stabilises above 20% and credit costs normalise. [11][12][8]
- Capex utilisation: most “capex” is intangible/tech; returns on these investments should show up as higher throughput per branch/employee and better digital cross‑sell, not in traditional capacity‑utilisation metrics. [1][11][12]
- Product and revenue triggers: deeper penetration into rural and mass‑affluent segments, scaling payments and app ecosystem, mortgages and housing finance growth, and cross‑sell into the >100m customer base could support mid‑20s AUM growth with diversified risk. [7][11][12][8]
- No large announced acquisition is a material earnings driver yet; the story is primarily organic compounding with occasional small inorganic moves within the Bajaj Finserv group. [1][6][3]

## Valuation and investibility view

- Current valuation multiples: stock P/E around mid‑30s and P/B above 6x, versus sector peers more in mid‑teens to low‑20s P/E and lower P/B, reflecting Bajaj Finance’s superior RoA/RoE and growth profile. [1][3][15]
- At these levels, the market is effectively pricing in sustained high‑teens to low‑20s EPS growth with controlled credit costs and no major regulatory shocks; any negative surprise on asset quality, growth slowdown, or fresh RBI restrictions can cause disproportionate de‑rating. [7][2][5][8]
- For a long‑term investor comfortable with NBFC cyclicality and willing to accept interim volatility, Bajaj Finance remains investible as a high‑quality compounder, but not “cheap”; it suits phased accumulation or buying on sharp corrections rather than aggressive entry after big rallies. [1][3][15]

If you want, the next step can be to translate this into a concrete valuation sheet (scenario‑based EPS, RoE and P/B assumptions) in Google Sheets so you can plug in your own growth and credit‑cost expectations.

Sources
[1] Bajaj Finance Limited - Annual Report 2024-25 https://www.bajajfinserv.in/finance-digital-annual-report-fy25/index.html
[2] India's central bank begins unwinding curbs on NBFCs and banks https://www.reuters.com/business/finance/indias-central-bank-begins-unwinding-curbs-nbfcs-2025-01-09/
[3] NBFCs leading the next phase of credit growth? - Upstox https://upstox.com/news/upstox-originals/investing/nbf-cs-leading-the-next-phase-of-credit-growth/article-178777/
[4] NBFC loans to grow 15-17% in FY26 on GST reforms, liquidity boost https://www.business-standard.com/finance/news/nbfc-loans-to-grow-15-17-in-fy26-on-gst-reforms-liquidity-boost-icra-125091001373_1.html
[5] Bajaj Finance shares tumble up to 8% as asset quality ... https://upstox.com/news/market-news/stocks/bajaj-finance-shares-plummet-7-as-asset-quality-in-q2-worsens-check-key-metrics/article-184397/
[6] Bajaj Finserv Annual Report 2024-25 https://www.bajajfinserv.in/finserv-digital-annual-report-fy25/index.html
[7] Bajaj Finance Limited - Annual Report 2024-25 https://www.bajajfinserv.in/finance-digital-annual-report-fy25/chairman-letter.html
[8] Bajaj Finance https://www.icicidirect.com/mailcontent/idirect_bajajfinance_q2fy26.pdf
[9] BAJAJ FINANCE 2024-25 Annual Report Analysis https://www.equitymaster.com/research-it/annual-results-analysis/BJFN/BAJAJ-FINANCE-2024-25-Annual-Report-Analysis/12343
[10] India's NBFC Ecosystem: A Deep Dive - OmniCard https://omnicard.in/blogs/nbfc-14092024
[11] Q4 FY25 Investor Presentation 29 April 2025 https://cms-assets.bajajfinserv.in/is/content/bajajfinance/bajaj-finance-q4-fy25-international-investor-Presentationpdf?scl=1&fmt=pdf
[12] Bajaj Finance Limited - Annual Report 2024-25 https://www.bajajfinserv.in/finance-digital-annual-report-fy25/our-18-year-journey.html
[13] Bajaj Finance Reports 23% Profit Growth in Q2 FY26, AUM ... https://scanx.trade/stock-market-news/earnings/bajaj-finance-reports-23-profit-growth-in-q2-fy26-aum-expands-24/24342185
[14] CONSOLIDATED FINANCIAL STATEMENTS https://www.bajajfinserv.in/finserv-digital-annual-report-fy25/assets-finserv/pdf/Consolidated%20Financial%20Statements.pdf
[15] NBFC sector outlook positive, Bajaj Finance correction 'not a concern' https://economictimes.com/markets/expert-view/nbfc-sector-outlook-positive-bajaj-finance-correction-not-a-concern-daljeet-kohli/articleshow/125265060.cms
[16] REPORT https://www.bajajfinserv.in/finserv-digital-annual-report-fy25/Bajaj%20Finserv%20AR%202024-25.pdf
[17] 2025 - Annual Report 2024-25 https://investors.bajajauto.com/ar25/
[18] Q2 FY26 International Investor Presentation https://cms-assets.bajajfinserv.in/is/content/bajajfinance/bajaj-finance-q2-fy26-international-investor-presentation?scl=1&fmt=pdf
[19] Concall Transcript - Bajaj Housing Finance https://www.bajajhousingfinance.in/documents/37350/6818897/BHFL+Q2+FY26+Conference+Call+Transcript.pdf
[20] Bajaj Finance Investor Relations – Annual Reports https://www.aboutbajajfinserv.com/finance-investor-relations-annual-reports