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BHFL reported a good quarter, driven by record disbursements and healthy profitability. AUM reached ~Rs1.5trn, growing 24% yoy, supported by robust disbursements of ~Rs195bn and easing BT-out pressure. Asset quality remained robust, with GNPA at 0.29%, while portfolio assignment (Rs23bn) kept credit costs exceptionally low, at 5bps. NIM compressed slightly (~14bps) as older high-yield loans were replaced with lower-yield new loans. The management expects a total of 20-25bps margin compression in FY27 compared to FY26. With operating efficiency steadily improving (opex-to-NTI at 19.6%) and a strong capital adequacy ratio of 21.59%, the company remains well-positioned to deliver its 21-23% AUM growth guidance, along with a healthy ROA of 2.1–2.3% and ROE of 12.5–13.0% for FY27. Factoring in the 1Q performance and management commentary, we marginally adjust our estimates while leaving our core earnings estimates largely unchanged. We maintain ADD and Jun-27E TP of Rs90, implying an FY28E PBV of 2.6x.

Healthy growth and profitability, backed by strong asset quality

BHFL reported healthy 1QFY27 results, with disbursements up 33% yoy (Rs195.09bn) and PAT growing 23% yoy to Rs7.15bn; these translated to an annualized ROA of 2.3% and ROE of 12.5%. AUM grew 24% yoy to Rs1,496bn, aided by some moderation in BTout pressure. Reported gross spread remained flat at 1.7% (with NIM compressing by 14bps sequentially to 3.7%), supported by a 7bps sequential decline in COF to 7.2%. Opex-to-NTI stood at 19.6%, declining from 21.2% in 1QFY26, while annualized credit costs stood at 5bps. On the asset quality front, GNPA stood at 0.29% and NNPA at 0.12%, alongside a Stage-3 PCR of 58.53%.

Reiterates growth and profitability guidance

The management maintains its 21-23% AUM growth target, supported by the scale-up of the Sambhav housing business (monthly disbursement target of ~Rs6bn) and a strategic shift in the Prime-to-Sambhav mix from the current 84:16 to 80:20 by yearend. While balance BT-out pressures eased in 1Q, the management would watch if this trend sustains, before upgrading growth expectations. Margins are expected to moderate by 20-25bps in FY27 as older high-yielding loans are replaced, though this will be partially supported by a downward bias in funding costs and the growing share of the higher-yield Sambhav portfolio (where affordable HL makes up 33-36% of the mix). Further, the continued rollout of AI and digital tools will improve operational efficiency, helping to keep the opex-to-net income ratio steady at 19-20%. With credit costs expected to stay well-contained at 10-15bps and GNPA at 30-35bps, the company is focused on delivering profitable growth, targeting a healthy ROA of 2.1-2.3% and ROE of 12.5-13.0% as leverage gradually inches up (~6.1x by FY27 exit).

Marginally adjust estimates; maintain ADD and Jun-27E TP of Rs90

Considering the 1QFY27 developments and management commentary, we largely retain our core estimates for FY28-29E (Exhibit 2). We maintain ADD and Jun-27E TP of Rs90, implying an FY28E PBV of 2.6x.

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