The holding company's performance reflects the complex dynamics of its underlying businesses—Bajaj Finance, Bajaj Allianz General Insurance, and Bajaj Allianz Life Insurance—which collectively contribute to its consolidated earnings. With the stock trading at an expensive valuation of 33 times trailing twelve-month earnings and a PEG ratio of 2.41, investors are questioning whether the premium multiple remains justified given the company's recent growth trajectory and mounting operational challenges.
The September 2025 quarter revealed a concerning divergence between top-line momentum and bottom-line performance. Whilst net sales grew steadily to ₹37,402.93 crores—representing a 5.54% quarter-on-quarter increase and 10.98% year-on-year expansion—the consolidated net profit witnessed a sharp sequential contraction. This disconnect between revenue growth and profitability compression signals potential margin pressures across the company's diversified financial services portfolio.
Financial Performance: Revenue Growth Masks Profitability Concerns
Bajaj Finserv's Q2 FY26 financial performance presents a tale of two narratives. On the revenue front, the company demonstrated resilience with net sales climbing to ₹37,402.93 crores, maintaining double-digit year-on-year growth of 10.98%. This growth trajectory, sustained across the first half of FY26, reflects the underlying strength of its financial services subsidiaries, particularly in lending and insurance segments.
However, the profitability picture tells a more complex story. The consolidated net profit of ₹2,244.10 crores, whilst showing a 7.53% year-on-year improvement, represents a significant 19.54% sequential decline from Q1 FY26's ₹2,789.05 crores. This quarter-on-quarter contraction is particularly notable given the seasonal patterns typically observed in financial services businesses.
| Metric | Q2 FY26 | Q1 FY26 | Q4 FY25 | Q3 FY25 | Q2 FY25 |
|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 37,402.93 | 35,439.08 | 36,595.36 | 32,041.81 | 33,703.74 |
| QoQ Growth | +5.54% | -3.16% | +14.21% | -4.93% | — |
| YoY Growth | +10.98% | +12.58% | +14.21% | — | — |
| Cons. Net Profit (₹ Cr) | 2,244.10 | 2,789.05 | 2,416.64 | 2,231.00 | 2,086.97 |
| QoQ Growth | -19.54% | +15.41% | +8.32% | +6.90% | — |
| Operating Margin % | 38.22% | 41.01% | 35.05% | 39.52% | 37.13% |
| PAT Margin % | 12.91% | 15.27% | 13.10% | 14.09% | 12.63% |
The operating margin compression from 41.01% in Q1 FY26 to 38.22% in Q2 FY26—a contraction of 279 basis points—warrants particular attention. Whilst the company maintained a healthy operating profit of ₹14,050.45 crores, the margin erosion suggests rising operational costs or competitive pressures affecting pricing power across its business segments.
Interest costs continued their upward trajectory, reaching ₹6,901.33 crores in Q2 FY26, up 1.38% sequentially and 14.15% year-on-year. This rising interest burden, reflecting the company's lending business expansion and the elevated interest rate environment, has become a persistent headwind to profitability. The PAT margin contracted to 12.91% from 15.27% in the previous quarter, highlighting the squeeze on bottom-line performance despite top-line growth.
Quality of Earnings: Tax Rate Volatility Raises Questions
A notable feature of Q2 FY26 results was the elevated effective tax rate of 30.46%, significantly higher than the previous quarter's 26.02%. This 444 basis point increase in tax incidence directly impacted net profitability, contributing to the sequential profit decline. The tax rate volatility—ranging from 20.76% to 30.46% across recent quarters—suggests potential one-time adjustments or changes in the tax treatment of subsidiary earnings, warranting closer scrutiny from investors regarding earnings quality and sustainability.
Capital Efficiency: ROE Remains Below Industry Leaders
Bajaj Finserv's return on equity (ROE) of 12.66% for the latest period, whilst positive, lags behind several high-performing financial services companies. For a holding company with diversified financial services businesses, this ROE level suggests room for improvement in capital deployment efficiency. The average ROE of 12.74% over recent periods indicates consistent but not exceptional returns on shareholder capital.
The company's balance sheet reveals substantial growth in shareholder funds, which reached ₹72,395.31 crores as of March 2025, up from ₹60,328.64 crores in the previous year. This 20% year-on-year increase in equity base reflects strong profit retention and capital accumulation. However, the company's ability to deploy this growing capital base at attractive returns will be critical for maintaining investor confidence at current premium valuations.
The investment portfolio, a key asset for this holding company structure, stood at ₹1.90 lakh crores as of March 2025, representing a 11.75% year-on-year increase. These investments, primarily comprising stakes in Bajaj Finance, Bajaj Allianz General Insurance, and Bajaj Allianz Life Insurance, form the cornerstone of Bajaj Finserv's value proposition. The performance and valuation of these underlying businesses directly influence the holding company's intrinsic worth.
Leverage Alert: Bajaj Finserv's net debt-to-equity ratio of 5.13 times represents elevated leverage typical of financial services holding companies. Whilst this leverage is primarily related to its lending subsidiaries' operations, investors should monitor debt servicing capabilities, particularly given the rising interest cost trajectory. The company's interest coverage, though adequate, has shown some pressure in recent quarters as interest expenses grew faster than operating profits.
Shareholding Dynamics: Promoter Stake Dilution and Institutional Interest
The shareholding pattern reveals significant changes in ownership structure over recent quarters. Promoter holding declined from 60.64% in March 2025 to 58.81% by December 2025, representing a 1.83 percentage point reduction. This dilution, occurring in a single quarter (between March and June 2025), suggests either stake sales or equity issuances that altered the ownership composition.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 58.81% | 58.81% | 58.81% | 60.64% | -1.83% |
| FII | 7.87% | 7.69% | 7.95% | 7.19% | +0.18% |
| Mutual Funds | 7.73% | 7.62% | 6.87% | 5.43% | +0.11% |
| Insurance | 2.47% | 2.52% | 2.90% | 3.30% | -0.05% |
| Other DII | 0.73% | 0.78% | 0.78% | 0.61% | -0.05% |
| Non-Institutional | 22.39% | 22.59% | 22.70% | 22.83% | -0.20% |
On a positive note, mutual fund holdings have shown consistent expansion, rising from 5.43% in March 2025 to 7.73% by December 2025—a substantial 230 basis point increase over three quarters. This accumulation by domestic institutional investors suggests growing confidence in the company's long-term prospects despite near-term earnings volatility. The presence of 47 mutual fund schemes holding the stock indicates broad-based institutional interest.
Foreign institutional investor (FII) holdings have remained relatively stable around 7.87%, with minor quarter-to-quarter fluctuations. Insurance company holdings, however, have declined from 3.51% in December 2024 to 2.47% by December 2025, representing a 104 basis point reduction. This consistent selling by insurance investors over four consecutive quarters may reflect portfolio rebalancing or concerns about valuation levels.
Peer Comparison: Premium Valuation Relative to Holding Company Universe
Bajaj Finserv's positioning within the holding company peer group reveals a mixed valuation picture. Trading at 33.23 times trailing earnings, the stock commands a significant premium to peers like Bajaj Holdings (17.17x) and TVS Holdings (19.63x), though it appears more reasonably valued compared to Choice International (96.81x) or JSW Holdings (135.38x).
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Bajaj Finserv | 33.23 | 4.21 | 12.74% | 5.13 | 0.05% |
| Bajaj Holdings | 17.17 | 1.79 | 10.79% | 0.00 | 0.85% |
| TVS Holdings | 19.63 | 5.63 | 16.77% | 5.31 | 0.61% |
| JSW Holdings | 135.38 | 0.58 | 0.84% | 0.00 | NA |
| Choice Intl. | 96.81 | 16.03 | 14.30% | 0.45 | NA |
| Mah. Scooters | 49.16 | 0.46 | 0.75% | 0.00 | 1.65% |
The company's ROE of 12.74% positions it in the middle of the peer pack—superior to Bajaj Holdings (10.79%) but trailing TVS Holdings (16.77%) and Choice International (14.30%). This moderate return profile, when combined with the premium valuation multiple, suggests the market is pricing in expectations of future ROE expansion or growth acceleration that hasn't yet materialised in recent quarterly results.
Bajaj Finserv's price-to-book ratio of 4.21x appears reasonable compared to Choice International's 16.03x or TVS Holdings' 5.63x, but represents a substantial premium to Bajaj Holdings' 1.79x. This valuation gap between the two Bajaj group holding companies likely reflects differences in their underlying asset portfolios and growth trajectories, with Bajaj Finserv's exposure to high-growth financial services businesses justifying a higher multiple.
The dividend yield of merely 0.05%—the lowest amongst comparable peers—highlights the company's focus on capital retention for growth rather than income distribution. With a latest dividend of just ₹1 per share, Bajaj Finserv clearly prioritises reinvestment in its subsidiaries over shareholder payouts, a strategy that may appeal to growth-oriented investors but offers little for income seekers.
Valuation Analysis: Premium Multiple Faces Growth Reality Check
Bajaj Finserv's current valuation metrics paint a picture of a stock trading at expensive levels relative to both historical norms and fundamental growth drivers. The P/E ratio of 33 times trailing earnings represents a significant premium to the industry average of 22 times, suggesting the market has built in optimistic expectations for future performance.
The PEG ratio of 2.41 is particularly concerning, as it indicates the stock is trading at 2.41 times its expected growth rate—well above the threshold of 1.0 typically considered fair value. With five-year sales growth of 19.90% and EBIT growth of 23.94%, the current valuation appears to have run ahead of the company's demonstrated growth capabilities, especially given the recent quarter's profit contraction.
Valuation Dashboard: Premium Pricing Across Metrics
P/E Ratio (TTM): 33.23x (vs Industry 22x) | P/BV Ratio: 4.21x | EV/EBITDA: 13.11x | Dividend Yield: 0.05% | Overall Grade: EXPENSIVE
The stock's valuation grade has oscillated between "Fair" and "Expensive" over the past year, most recently settling into "Expensive" territory since January 2025. This reflects the market's struggle to reconcile premium valuations with moderating growth rates and profitability pressures.
The enterprise value multiples provide additional perspective. An EV/EBITDA of 13.11x and EV/EBIT of 13.43x suggest the market is valuing the company's operating earnings at substantial premiums. The EV/Sales ratio of 4.96x—nearly 5 times revenues—indicates investors are paying a steep price for each rupee of top-line generation, appropriate only if significant margin expansion or growth acceleration materialises.
Trading 7.91% below its 52-week high of ₹2,194.65 but 16.95% above its 52-week low of ₹1,728.15, the stock finds itself in a middle ground—neither offering the deep value of correction lows nor the momentum of fresh highs. This positioning, combined with expensive absolute valuations, creates a challenging risk-reward equation for new investors at current levels.
Stock Performance: Underperformance Against Sector Benchmarks
Bajaj Finserv's stock performance over the past year reveals a company struggling to maintain momentum against both broader market indices and its sector peers. The one-year return of 11.41% has underperformed the holding company sector's 20.18% return by 8.77 percentage points, raising questions about the company's relative investment appeal within its peer group.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +4.12% | +1.81% | +2.31% |
| 1 Month | -0.98% | -2.25% | +1.27% |
| 3 Months | -2.51% | +0.45% | -2.96% |
| 6 Months | +4.54% | +3.48% | +1.06% |
| YTD | -0.87% | -1.63% | +0.76% |
| 1 Year | +11.41% | +6.68% | +4.73% |
| 3 Years | +51.11% | +37.79% | +13.32% |
| 5 Years | +107.96% | +65.63% | +42.33% |
The three-month performance is particularly telling, with the stock declining 2.51% whilst the Sensex gained 0.45%, resulting in negative alpha of 2.96%. This recent underperformance coincides with the period of earnings disappointment and margin compression, suggesting the market has begun repricing the stock based on deteriorating fundamentals rather than past glory.
From a longer-term perspective, the stock has delivered impressive returns—107.96% over five years and 973.77% over ten years—significantly outpacing the Sensex. However, past performance provides limited comfort when current valuation multiples appear stretched and near-term growth indicators point to deceleration. The question for investors is whether the stock's historical outperformance justifies today's premium pricing.
The stock's beta of 1.17 indicates higher volatility than the broader market, with a standard deviation of 23.34% over the past year. This elevated volatility, categorised as "Medium Risk," means investors should expect larger price swings in both directions. The risk-adjusted return of 0.49 compares unfavourably to the Sensex's 0.57, suggesting the stock hasn't adequately compensated investors for the additional risk undertaken.
Technical Analysis: Bearish Signals Dominate Near-Term Outlook
The technical picture for Bajaj Finserv has deteriorated significantly in recent weeks, with the stock transitioning to a "Mildly Bearish" trend on February 3, 2026. This shift from the previous "Sideways" trend reflects weakening momentum and growing selling pressure at current levels. The stock is trading below all major moving averages—5-day (₹1,948.37), 20-day (₹1,979.39), 50-day (₹2,023.27), 100-day (₹2,045.78), and 200-day (₹2,023.41)—a technically bearish configuration suggesting the path of least resistance remains downward.
Multiple technical indicators are flashing warning signals. The MACD shows "Bearish" readings on the weekly timeframe and "Mildly Bearish" on monthly charts, indicating deteriorating momentum across multiple time horizons. Bollinger Bands suggest "Mildly Bearish" conditions on the weekly chart, though monthly readings remain "Bullish," creating mixed signals. The KST indicator presents a particularly conflicted picture—"Bearish" weekly but "Bullish" monthly—highlighting the uncertainty in the stock's directional bias.
The immediate support level rests at the 52-week low of ₹1,728.15, approximately 14.5% below current levels. Should this support fail, the stock could face further downside with limited technical cushions. On the upside, the stock faces multiple layers of resistance—the 20-day moving average at ₹1,979.39 serves as immediate resistance, followed by the 50-day moving average at ₹2,023.27, and the more formidable 100-day moving average at ₹2,045.78.
Investment Thesis: Quality Company at Expensive Valuation
Bajaj Finserv's investment proposition rests on a foundation of quality businesses operating in high-growth financial services segments. The company's "Good" quality grade reflects its long-term financial performance, with five-year sales growth of 19.90% and EBIT growth of 23.94% demonstrating consistent expansion capabilities. The holding company structure provides diversified exposure to lending, general insurance, and life insurance—three attractive segments within India's underpenetrated financial services market.
However, this quality comes at a steep price. The "Expensive" valuation grade, combined with a "Flat" financial trend in the most recent quarter and "Mildly Bearish" technical indicators, creates a challenging entry point for new investors. The company's Mojo score of 47 out of 100, resulting in a "SELL" rating, reflects these conflicting dynamics—quality fundamentals overshadowed by valuation concerns and deteriorating near-term trends.
KEY STRENGTHS ✓
- Diversified Financial Services Portfolio: Exposure to high-growth lending, general insurance, and life insurance businesses through quality subsidiaries
- Strong Historical Growth: Five-year sales CAGR of 19.90% and EBIT CAGR of 23.94% demonstrate consistent expansion
- Market Leadership Position: Subsidiaries hold strong competitive positions in respective segments with established brand equity
- Robust Balance Sheet: Shareholder funds of ₹72,395 crores and substantial investment portfolio of ₹1.90 lakh crores
- Rising Institutional Interest: Mutual fund holdings increased 230 basis points over three quarters to 7.73%
- Large-Cap Liquidity: Market capitalisation of ₹3.23 lakh crores ensures adequate trading volumes and institutional participation
- Promoter Backing: Strong promoter holding of 58.81% from the established Bajaj Group provides governance comfort
KEY CONCERNS ⚠
- Profit Contraction: Consolidated net profit declined 19.54% quarter-on-quarter in Q2 FY26 despite revenue growth
- Expensive Valuation: P/E of 33x (vs industry 22x) and PEG ratio of 2.41 indicate premium pricing not justified by growth
- Margin Compression: Operating margin contracted 279 basis points sequentially to 38.22% in Q2 FY26
- Weak ROE: Return on equity of 12.66% lags industry leaders and doesn't justify premium valuation multiple
- Rising Interest Burden: Interest costs up 14.15% year-on-year, pressuring profitability despite revenue growth
- Sector Underperformance: One-year return of 11.41% trails holding company sector's 20.18% by 8.77 percentage points
- Technical Weakness: Mildly bearish trend with stock trading below all major moving averages
- Minimal Dividend: Yield of 0.05% offers no income component to offset capital appreciation risks
Outlook: Monitoring Points for Trend Reversal
The forward outlook for Bajaj Finserv hinges on several critical factors that will determine whether the current challenges represent temporary headwinds or structural issues. Investors should closely monitor quarterly profit trends, particularly whether the Q2 FY26 profit contraction proves to be an aberration or the beginning of a sustained slowdown. The company's ability to stabilise and expand operating margins will be crucial for justifying current valuation levels.
The performance of underlying subsidiaries—Bajaj Finance, Bajaj Allianz General Insurance, and Bajaj Allianz Life Insurance—will directly impact the holding company's value. Any material developments in asset quality, premium growth, or competitive positioning at these subsidiaries should be watched carefully. Additionally, the company's capital allocation decisions, particularly regarding dividend policy and potential stake sales in subsidiaries, could serve as catalysts for value unlocking.
POSITIVE CATALYSTS
- Stabilisation of profit margins and return to sequential profit growth in upcoming quarters
- Improvement in return on equity towards 15%+ levels through better capital deployment
- Valuation correction bringing P/E closer to 25x, improving risk-reward for fresh entry
- Strong performance from subsidiaries, particularly Bajaj Finance's asset quality and growth metrics
- Technical trend reversal with stock reclaiming 50-day and 100-day moving averages
RED FLAGS TO WATCH
- Further sequential profit declines in Q3 or Q4 FY26 indicating structural margin pressure
- Continued deterioration in ROE below 12% levels suggesting capital efficiency challenges
- Additional promoter stake dilution without clear strategic rationale or value-accretive deployment
- Rising non-performing assets or asset quality concerns at Bajaj Finance subsidiary
- Stock breaking below 52-week low of ₹1,728, triggering technical selling pressure
The Verdict: Quality Franchise Trapped in Valuation Prison
Score: 47/100
For Fresh Investors: Avoid initiation at current levels. The combination of expensive valuation (P/E 33x, PEG 2.41), deteriorating near-term trends (19.54% profit decline, flat financial trend), and bearish technicals creates an unfavourable risk-reward equation. Wait for either a meaningful valuation correction (P/E below 28x) or clear evidence of profit growth stabilisation before considering entry. The 8.77 percentage point underperformance versus the holding company sector over the past year suggests better opportunities exist elsewhere.
For Existing Holders: Consider reducing positions on any technical bounce towards the ₹2,100-2,150 range. Whilst the underlying businesses retain quality characteristics, the premium valuation leaves little room for disappointment. The 19.54% sequential profit decline in Q2 FY26, combined with margin compression and expensive multiples, suggests risk-reward has turned unfavourable. Book partial profits to rebalance portfolio risk, particularly if holdings represent oversized positions. Retain core holdings only if conviction remains in long-term subsidiary performance and willingness exists to weather potential 15-20% downside to fair value.
Fair Value Estimate: ₹1,750-1,800 (13-15% downside from current levels), implying a more reasonable P/E of 28-29x
Note— ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results. The analysis presented is based on publicly available information as of February 4, 2026, and market conditions may change rapidly.
