Reduce Bajaj Finance Ltd For Target Rs 950 By Emkay Global Financial Services Ltd
BAF reported a good quarter in terms of growth, profitability, and credit cost, with PAT of Rs54.6bn (attributable to shareholders), above our estimates and broadly in line with street estimates. This was largely due to lower credit cost at 1.6%, which the management expects will further improve on the back of better trends across the 3MOB, 6MOB, and 9MOB cohorts. The management indicated it is entering FY27 with improving operating momentum, backed by better credit performance, calibrated portfolio actions, and operating efficiency gains. The company has guided for AUM growth of ~22-24%, with PAT growing slightly ahead of AUM, driven by stable margins, improving opex efficiency (25– 40bps improvement in opex/net total income (NTI), and a more benign credit cost environment. Credit cost guidance was revised to 1.45-1.60% from 1.65- 1.75% due to presentation change. Factoring in the Q4 performance and management commentary, we adjust our FY27-28 estimates which results in a 4-8% increase in EPS. We reiterate REDUCE while increasing Mar-27E TP by ~6% to Rs950 from Rs900, implying SA FY28E P/B of 4.2x.
Good finish to FY26 with improving asset quality
BAF ended FY26 with a strong PAT, asset quality, and credit cost. AUM grew ~22.5% to Rs5.1trn. Credit costs improved significantly, as delinquency and collection trends across the 3MOB, 6MOB, and 9MOB cohorts improved, while asset quality improved sequentially with GS3 down by 21bps QoQ to 1.01%. Additionally, BAF has started netting off recoveries from provisions (earlier recognized in ‘other income’) which further reduced the credit cost by 10bps QoQ. The company maintains a healthy PCR and has increased coverage on standard assets
Balanced growth with stronger credit outlook
The management expects FY27 AUM growth at ~22-24%, with near-term growth reflecting continued normalization in MSME (reverting to double-digit growth by Q2-Q3) and the ongoing run-down of the captive 2W/3W book (~1% of AUM, disproportionate GNPA/credit cost contribution), while gold loans, tractor finance, and MFI are likely to grow faster than the portfolio. Margin is expected to see slight moderation (contingent on how interest rates evolve), though the mgmt has guided for PAT growth to log slightly above AUM growth supported by operating leverage and ~25-40bps improvement in opex/NTI – opex will be aided by scale benefits and increasing AI-led efficiencies. Credit cost guidance is ~1.45–1.60%, with improving delinquency trends across buckets providing confidence on normalization, while asset quality is expected to be stable (GNPA: <1.4%; NNPA: <0.5%). Overall, BAF expects RoA of ~4.4-4.6% and RoE of ~19- 20%, with continued focus on delivering profit growth ahead of AUM growth through a combination of cost discipline, portfolio mix stability, and calibrated risk management.
We maintain REDUCE; revise TP upward by >5% to Rs950
Based on the Q4FY26 performance and management commentary, we adjust our FY27- 28 estimates which results in EPS increasing 4-9%. We maintain REDUCE while revising up Mar-27E TP by ~6% to Rs950 from Rs950, implying standalone FY28E P/B of ~4.2x.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
