Bajaj Finance Stock Research Report

Exits co-branded credit card distribution; minimal impact on earnings…

Bajaj Finance (BAF) has decided to exit the co-branded credit card distribution business. RBL Bank (RBK) announced that the bank and BAF have mutually agreed to terminate their co-branded credit card partnership. This would also imply that BAF will potentially terminate its co-branded card partnership with DBS Bank (DBS). 
What is puzzling is that BAF, which had once articulated its aspirations to become one of the largest card issuers in the country, has now decided to exit the co-branded card distribution entirely. 

1. BAF had earlier reported that it had a total of ~4m co-branded credit cards in force (CIF) as of Sep’24. This included ~3.4m RBK co-branded CIF and ~0.6m DBS co-branded CIF. With BAF’s decision to exit the co-branded card distribution business, it will stop incremental sourcing of co-branded credit cards and cease new customer on-boarding on the platform of the co-branded cards.

2. Under these co-branded credit card partnerships, BAF received an upfront fee on sourcing/origination and trail fee income (shared in a certain fee income) on interchange fees and annual card fees. In terms of impact from the termination of this partnership, BAF will no longer receive an upfront fee on co-branded credit card origination. However, trail fee income mentioned above will continue on the co-branded cards in force so long as the cards are in good standing and remain active until the next card renewal, when they will be replaced with the respective bank’s credit card.

3. According to our calculations, we estimate BAF’s fee income to decline INR470m and ~INR1.4b in FY25 and FY26, respectively, as a direct impact of no upfront fee on card originations. This translates into ~0.2% and ~0.4% of the PPoP in FY25/FY26, respectively (Refer to Exhibit 8). Income from the trail fee stream will continue to accrue for at least the next 2-3 years as there is no sunset clause in place for the sharing of trail fee income.

4. We do not expect any material impact on the profitability of BAF (from its decision to exit the co branded card distribution business), given that the company will continue to get its share of future revenues from its existing credit card franchise. Moreover, we believe that the company, as in the past, will deploy these resources in some other business segments/revenue streams to continue to augment its fee income stream.

Bajaj Finance Stock Research Report – Valuation and view

While BAF’s decision has come as a surprise, it is crucial to consider the role played by RBI in influencing RBK-BAF’s decision to terminate the co-branded partnership. While the valuations are attractive at 3.5x P/BV and 19x 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 INR7,250 (3.5x Sep’26E P/BV).

BAF and RBK co-branded credit cards partnership: Size and scale

(1) Over the last few months, new RBK co-branded credit card originations were averaging ~35-40K per month and BAF would have sourced 250K-300K RBK cobranded credit cards in 1HFY25.
(2) RBK shared that if the acquisition pay-out on credit cards on a blended basis was “X”, it was paying 0.75x to BAF for card origination. In addition, RBK also gave a small trail payout based on transactions (interchange fees) and annual fees on credit cards.
(3) For RBK, its outstanding credit card receivables had ~50-55% from the BAF cobranded credit card portfolio.

Bajaj Finance Stock Research Report – Co-branded card partnership: Why is the partnership terminated?

1.. RBK and BAF discussed the nuances of this co-brand partnership over the last month and concluded that the synergies have undergone a significant change over a period of time. BAF and RBK mutually agreed to terminate the cobranded credit card partnership.
2.. The termination of this partnership was initiated by BAF, and RBK was comfortable with this decision considering the volumes had already significantly declined over the past year.
3.. RBK also shared that BAF has intimated its decision to exit from the co-branded card distribution business. BAF is exiting this category altogether and the announcement made by RBK was consequent to this decision.
4.. RBK sought to reduce the quantum of newer credit cards sourced through this partnership. At some point, sourcing <30K credit cards no longer made sense for BAF, leading to a mutual agreement to end the partnership.