Bajaj Finance shares jump 5%; Axis Securities recommends 'Buy' on margin recovery hopes

Shares of Bajaj Finance Ltd rose 4.93 per cent on Friday to settle at Rs 9,373.05. Axis Securities believes the non-banking financial company (NBFC) is poised to benefit from the ongoing interest rate easing cycle. The brokerage expects a recovery in net interest margins (NIMs), steady asset quality and strong growth across key business segments. It has maintained a 'BUY' rating on the stock with a target price of Rs 10,225, implying a potential upside of 9 per cent over the next 3–6 months.

Axis Sec said the company saw a sharper-than-expected NIM contraction of 49 basis points (bps) in FY25, largely due to moderated pricing in select unsecured loan segments. This was higher than management's guidance of a 30–35 bps decline. However, with the Reserve Bank of India (RBI) announcing a significant 50 bps rate cut in the June 2025 MPC meeting, the brokerage expects NIMs to stabilise and move with a positive bias.

"In the current rate cut cycle, Bajaj Finance expects CoF (cost of funds) to gradually decline by 10-15 bps over FY26 (assuming 3 rate cuts) and settle at 7.75-7.85 per cent in FY26. This decline factors in the lag in the downward repricing of long-tenor loans and around 75 per cent of borrowings, which are fixed-rate. However, bank borrowings would be repriced faster, and the company has already seen a decline in NCD/CP rates," it stated.

"However, with the mega rate cut of 50 bps in the June 2025 MPC meeting, we expect the company's NIMs to move with a positive bias. Thus, it remains well-placed to navigate the rate cut cycle despite the pricing pressure in certain products and protect NIMs with scope to improve margins over the medium term," Axis Sec added.

The broking firm noted that the shadow lender's asset quality in certain segments is on the mend. Credit costs are expected to moderate as the company winds down its captive two/three-wheeler financing business. Moreover, asset performance in the rural B2C and newer two-wheeler loan portfolios is improving, supported by tighter credit filters and cautious lending strategies.

"AUM growth will be driven across segments with strong contribution from the core businesses and a gradual ramp-up in the newer secured businesses. The gold and new car loans business continues to see strong traction, albeit on a lower base. Moreover, the concerns around the rural B2C business continue to fade, and the management remains optimistic that growth will bounce back in this portfolio from FY26 onwards. Bajaj Finance remains well-poised to deliver AUM growth of ~25 per cent CAGR over FY25-27E while prioritising asset quality," the brokerage further stated.