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We initiate coverage on Bajaj Finance (BAF) with a BUY recommendation and Mar-25E TP of Rs9,000/sh (~23.4% upside), implying FY26E consolidated P/B of 5.1x. Our positive stance on the stock is underpinned by 3 factors: i) Flawless execution of strategic plans being BAF’s biggest strength; its execution capabilities are as strong as ever. ii) Near-term challenges/concerns—such as RBI actions on EMI and E-com cards, Management succession & transition plans, and listing of the housing subsidiary—have already been identified, and a resolution for each is likely within the next one year. iii) Continuing with its immaculate 3i execution strategy (Invent, Innovate and Imitate), the company is well poised to deliver consol. AUM CAGR of ~25% and consol. PAT CAGR of 21.4%, over FY24-27E. BAF shares have materially underperformed in the past few years and, as the company continues to make good progress on its ‘Long Range Strategy’ (LRS 2028) in terms of advancing its customer franchise (83.6mn) and AUM (3.8-4% of retail credit/3-3.25% of overall credit), the recent correction (in last 2yr) in valuations provides an attractive entry point.

Execution machine as powerful as ever; resolution of niggling issues to be the re-rating catalyst

BAF’s journey over the last one & a half decades has been a hallmark of near flawless execution of its 3i strategy (Invention, Innovation and Imitation) amid a number of external turbulences, shocks and disruptions, including Demonetization, GST, and Covid19. Notwithstanding niggling issues in the past few years, BAF has continued to deliver growth (AUM and Customer Franchise) and profitability (RoA/RoE) in line with or better than its LRS and far superior than lending peers, despite reaching its current size and material exposure to mortgages. Regarding recent issues and overhangs, the company has addressed the deficiencies in processes that led to the RBI ban on E-com/EMI cards; the BHFL IPO is likely to come up within a year, and the recent Management reshuffle & hiring has granted clarity on Management succession and transition of MD Rajeev Jain.

We expect consolidated AUM and PAT to nearly double over FY24-27E

BAF has proactively added new product offerings in its already wide product portfolio. The newer product lines are likely to eventually post ~6-7% consol. AUM over coming 5 years, and offset any pressure on consol. yields resulting from the increasing mortgage in the AUM mix. At the consolidated level, we expect BAF to log AUM CAGR of 25% over FY24-27E, nearly doubling to Rs6.5trn, while noting PAT CAGR of 21.4% (improving to Rs262bn) by FY27E, with RoA seeing a marginal dip due to rising mortgage in AUM mix.

Recent underperformance of shares provides attractive entry point; initiate coverage on BAF with a BUY recommendation

BAF shares have materially underperformed the NIFTY50 over the last 2 years, amid RBI action on the company, anticipation around Management transition & succession, fear of entry of behemoths in consumer financing, and inclusion of Bajaj Housing Finance in the RBI’s Upper Layer. With resolutions for most of these issues likely within the next one year, the correction in BAF shares provides an attractive entry point, given that the execution machine of the company is as effective as ever and that it is well on track to deliver its LRS targets (i.e. superior growth and profitability with regard to financial services). We initiate coverage on BAF with a BUY recommendation and Mar-25E TP of Rs9,000/share (23.4% upside), implying Mar-26E consolidated P/BV of 5.1x. We value standalone BAF at 5.6x FY26E P/BV and Bajaj Housing at 3x FY26E P/B. Key risks: new regulatory actions or prolonged duration of existing regulatory actions; transition to a bank structure; extreme increase in competitive intensity in key segments.

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