Bajaj Finance Stock Research Report

Bajaj Finserv hosted its investor day on 10th Dec’24, wherein the senior management of Bajaj Finance (BAF) led by Mr. Rajeev Jain, MD, unveiled BAF 3.0 – a FINAI company – and gave a sneak peek into its Long-Range Strategy (LRS) 2025-29. BAF has demonstrated strong growth in the last 17 years, establishing itself as a leader in India’s financial services sector. With a robust strategy underpinned by innovation and technology, BAF is well poised to achieve its FY25 targets, including INR4t in AUM and continued leadership in financial performance. In FY25, BAF aims to disburse over 40m loans and scale up to a 100m customer franchise.

Key highlights from the investor day presentation:

1) BAF has identified three new megatrends – green finance, multi-cloud and zero trust – and now has 28 megatrends that it will be working on. 2) It will integrate AI to significantly improve customer engagement, grow revenue, reduce opex and credit costs, and enhance productivity. 3) The acquisition of next 100m customers will be done through strategic partnerships, organic acquisitions and Bajaj Prime. 4) It will focus on MSME as its next big growth engine. 5) BAF aims to build market leadership in personal loans (PL), gold loans, MFI and 2W, and create a viable payments business.

LRS 2024-28 Update:

Of its 35 strategies, 28 are live or on track, and seven are works in progress. BAF has made significant progress in retail mortgages, digital transformation and customer acquisition. On horizontals, 14 out of its 15 strategies are live and only one is a work in progress. On platforms, only one strategy is a work in progress and the rest are live. Two megatrends where significant efforts have been made in FY25 are AA and GenAI. BAF will cross 30m Account Aggregator (AA) consents by end-FY25, significantly enriching its customer insights. Importantly, BAF is implementing 29 GenAI use cases across 25 work streams, which will help achieve annual opex savings of INR1.5b in FY26. The company has enhanced customer retention via apps and reduced operational costs through AI. It has also focused on penetrating high-growth markets such as Uttar Pradesh, Bihar, and the Northeast. Refer to Exhibits 1 and 2 for progress made by BAF on its LRS 2024-28.

Sneak peek into LRS 2025-29:

BAF has identified green finance, multi-cloud and zero trust as its three new megatrends. It will start with financing of solar and EV products to retail and MSME customers in 4QFY25 and will target INR20b of green finance in FY26. In the next 12-18 months, it will implement critical security policies and will deliver comprehensive zero-trust initiatives by FY26. Refer to Exhibit 3 for new megatrends identified under LRS 2025-29.

BAF 3.0 – Transition to a FINAI company:

BAF 3.0 aims to integrate AI into every process, creating an ecosystem of efficiency, productivity, and customer satisfaction. Its strategic focus areas from a financing perspective include: a) acquiring 100 million new customers through strategic partnerships and organic growth, b) targeting MSME financing as a key growth engine, and c) expanding into green finance, focusing on solar and EV products. It will also look to roll out AIenabled processes to boost engagement, reduce costs, and enhance risk management. It expects that the deployment of Generative AI across 29 workstreams will result in opex savings of INR1.5b annually from FY26 onward. Refer to Exhibits 5 and 6, for initiatives identified under each of FIN (Finance) and AI, to transition to BAF 3.0.

BAF’s LRS outcomes for FY29:

Customer franchise of 190-210m; market share of 3.2%-3.5% of total credit and 3.8%-4.2% of retail credit; strong digital presence with 150-170m app installs and 4.5b web visitors; and RoE sustained at 20-22%. Refer Exhibit 7, for key LRS outcomes for FY28 and FY29.

Valuation and view:

While the valuations are attractive at 3.7x P/BV and 20x FY26E P/E, we do not anticipate any significant upside catalysts until it successfully navigates the asset quality challenges in its B2C loan book and makes concerted efforts to improve the proportion of secured loans in its loan mix. Maintain Neutral with a TP of INR7,500 (3.6x Sep’26E P/BV).