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AUM grew 24% YoY to INR5,469.4bn driven by strong momentum across mortgages and urban/ rural consumer finance on the back of deeper customer penetration and wider distribution reach. Management expects MSME growth to recover from Q3FY27 following portfolio pruning and we build AUM growth of 24%/23% for FY27/FY28E supported by FINAI-led sourcing capabilities. NIM remained resilient at ~9.6% and we expect it to be range-bound in FY27E with CoF under control. Asset quality improved sequentially with healthy vintage performance supporting a positive credit cost outlook; we factor in credit cost of ~1.6% for FY27E. Opex is likely to moderate by ~30bps in FY27E benefited from improved operating efficiencies. We slightly tweak our estimates to account for positive growth momentum, stable margin and improved opex and credit cost outlook in FY27E. Maintain “Accumulate” with a multiple of 4.2x (vs. 4.1x earlier) and a TP of INR1,125.

Expect AUM growth of ~24% in FY27E: AUM grew ~24% YoY/7.2% QoQ to INR 5,469.4bn, driven by Mortgages (+27% YoY), Urban Sales Finance (+38% YoY), Urban B2C (+19% YoY) and Rural B2C (+27% YoY). MSME growth remained subdued (+2% YoY) due to portfolio pruning amid elevated delinquencies, though management expects growth to recover by Q3FY27. Consumer finance continued to witness healthy traction, supported by deeper customer penetration, wider distribution reach and higher ticket sizes. Gold loan portfolio is expected to scale up to INR 290–300bn with ~2,800 branches by FY27. While competitive intensity remains elevated across personal loans, MSME and consumer finance, the company believes its FINAI capabilities will be a key growth lever in increasing loan origination and customer acquisition.  New loans booked in 1QFY27 grew ~20% YoY to 16.1mn and BAF added 5.1mn new customers during the quarter, taking the total customer franchise to 124.4mn. It expects to disburse 60-62mn new loans in FY27 and remains confident of adding ~18-20mn new customers in FY27. Management reiterated its long-term growth guidance of 23%-25% driven by (1) ramp-up in new segments, (2) recovery in MSME portfolio and (3) AI-led lending opportunities. We build an AUM growth of 24%/23% for FY27/FY28E.

NIM resilient; efficiency gains to support profitability: NII grew 22.9% YoY/ 6.7% QoQ to INR125.7bn. NIM (calc.) improved marginally to 9.51% vs 9.48% QoQ, while reported CoF remained stable at 7.40% (vs. 7.41% in Q4). Management expects CoF to remain broadly range-bound, with a marginal uptick due to hardening bond yields, inflationary pressures and monsoon-related uncertainties. We build a similar range for NIM at ~9.6% for FY27E. Reported opex/ NTI ratio stood elevated at 33.4% in Q1 (vs. 33.1% YoY) primarily due to (1) implementation of new labor code (~10bps impact) and (2) continued investments in gold loan/ MFI branch expansion. While the company plans to add 200-250 branches annually, it expects opex ratio to improve by 25-40bps in FY27 with productivity gains from FINAI capabilities. We build 30/20 bps improvement in C/I ratio in FY27/FY28E and expect BAF to deliver RoA/RoE of 4.4%/ 21.4% by FY28E.

Asset quality improves; credit cost outlook supportive: Headline GNPA/NNPA improved sequentially to 0.96%/0.39% vs. 1.01%/0.41% in Q4FY26 while PCR stood comfortable at 60%. Company reiterated its focus on maintaining a resilient balance sheet amid an uncertain global environment, thereby creating a management and macro-economic overlay of INR3bn. Management highlighted a meaningful improvement in vintage credit performance across 3MOB, 6MOB and 9MOB and remains optimistic on credit cost outlook for FY27. We build a credit cost of 1.6% for FY27E supported by prudent provisioning, normalization of MSME stress and the gradual run-down of captive 2W/3W share in the AUM mix.

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