Global brokerage CLSA has reiterated its Outperform rating on Bajaj Finance, arguing that a recent correction has made the risk–reward equation increasingly attractive. In a note titled 'The price is right no.1', CLSA flagged the stock as its top pick among non-banking financial companies (NBFCs), with a target price of Rs 1,200, implying a 27% upside from current levels.
Bajaj Finance shares have corrected about 13% since the company's November results, driven largely by concerns around moderation in loan growth and margin pressures. CLSA believes the market reaction has been excessive and that the current valuation offers a compelling entry point.
CLSA reiterated that Bajaj Finance remains its highest-ROE stock within BFSI coverage after Muthoot Finance. Quoting Warren Buffett, the brokerage summed up its stance: "Don't pass up something that's attractive today because you think you will find something better tomorrow."
Growth Concerns Overdone?
The brokerage acknowledged that Bajaj Finance's assets under management (AUM) growth has slowed from 25-26% to around 22% over the past few quarters. However, it attributed this largely to a deliberate run-down of the company's captive two- and three-wheeler financing book, as well as temporary slowdown in MSME lending due to asset quality concerns and higher repayments in home loans.
CLSA expects these drags to fade by FY27. While growth in urban B2C segments may moderate, a pickup in MSME and home loan growth is likely to offset this, leading to consolidated AUM growth of about 23% in FY27, compared with an estimated 22% in FY26.
Margin Stability in Focus
On profitability, CLSA expects core pre-provision operating profit (PPOP) margins to remain broadly stable over the next two years. The brokerage noted that while Bajaj Finance has seen some net interest margin compression and fee pressure due to changes in partnerships and trimming of charges, these headwinds should ease.
Fee income growth is expected to accelerate from around 14% to nearly 20%, supported by operating leverage and tighter cost control. CLSA estimates a 20 basis point decline in the expense ratio over the next two years, translating into a healthy 22% core PPOP CAGR.
ROE Remains a Key Strength
Bajaj Finance continues to stand out on return metrics, according to CLSA. The company has delivered a return on assets (ROA) of 4-4.7% and return on equity (ROE) of 20-23% over the past four years, despite rising competition in the NBFC space.
With the recent correction, the stock is now trading at around 19x forward earnings, which CLSA sees as attractive for a lender with diversified businesses, strong profitability and relatively lower cyclicality compared with peers.
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