Reduce Bajaj Finance Ltd for the Target Rs 1,050 by Emkay Global Financial Services Ltd
BAF reported a sturdy quarter in terms of growth, profitability, and credit cost, with PAT (attributable to shareholders) at ~Rs59.8bn broadly in line with our estimates. Performance was mainly driven by lower core credit cost of 1.54% yoy (1.87% in 1QFY26), which was backed by significant improvement across 3MOB, 6MOB, and 9MOB that are running below pre-Covid levels. Management maintains its FY27 AUM growth guidance of 22-24%, stating it would review guidance post-2Q and expects profit growth to structurally outpace balance sheet growth. This will be driven by improving operating efficiency, with a targeted 25-40bps improvement in opex-to-NTI, alongside margins that may see a slight moderation of 10-15bps. To further strengthen the balance sheet, BAF has prudently created a Rs2.96bn macroeconomic provision to shield against geopolitical and monsoon uncertainties. Factoring in the 1Q performance and management commentary, we adjust our FY27-29 estimates; this leads to a ~3-4% increase in our EPS estimates. We reiterate REDUCE on the stock while raising Jun-27E TP by 5% to Rs1,050 from Rs1000, implying SA FY28E PBV of 4.6x
Strong start to FY27
BAF saw a productive 1Q, with PAT growing 28% to ~Rs59.9bn. AUM grew 24% yoy to Rs5.47trn, supported by steady NIMs during the quarter. Opex-to-NTI stood at 33.4%, driven by accelerated Gold Loan and MFI branch network expansion, alongside a ~10bps impact from the New Labor Code. Credit costs improved significantly, to 1.54%, which would have been 1.31% excluding a prudently recognized Rs2.96bn macroeconomic overlay provision. Asset quality strengthened sequentially, with GNPA declining by 5bps qoq to 0.96%, while the company maintained a healthy 60% PCR on stage 3 assets
Guidance intact; to revisit post-2Q
Management maintained its FY27 AUM growth guidance at 22-24%, though it will consider upward revision post-2Q if the current strong momentum sustains. Near-term growth expectations reflect a projected rebound in the MSME segment (in 3Q) along with continued momentum in the ‘other product’ segment. Gold Loans is aggressively scaling up, with 110 monthly branch additions and FY27 AUM target of Rs290-310bn (2.7-2.8k branches). Margins are expected to moderate by ~10-15bps, whereas COF is expected to be stable with marginal movement. This profitability will be aided by stable-toimproving credit cost and a targeted ~25-40bps improvement in opex-to-NTI, supported by expanding AI-led efficiencies that significantly lower origination and servicing costs. Overall, the company retains its long-term guidance of 23-25% AUM growth, of 4.3-4.7% for ROA, and of 19-21% for ROE (with GNPA below 1.4% and NNPA below 0.5%), with continued focus on strict risk thresholds and strengthening the balance sheet.
Long-term profitable growth fully priced-in; maintain REDUCE
Factoring in the 1QFY27 performance and management commentary, we adjust our FY27-29 estimates; this results in our EPS increasing 3-4%. We maintain REDUCE while revising up Jun-27E TP by 5% to Rs1,050 from Rs1,000, implying SA FY28E PBV of ~4.6x
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