Add Bajaj Finance Ltd for the Target Rs. 1,000 by Emkay Global Financial Services Ltd
Great start despite the choppy external environment
BAF reported an overall satisfactory quarter, with PAT coming 3% above consensus/our estimates. This was primarily due to lower-than-expected credit cost, which came in at 1.98%, around 10bps lower than our estimate. The management maintains its medium-term growth guidance, while indicating slowdown in the MSME and Auto segments (winding down the captive book, which is seeing elevated stress). In terms of margins and benefit of rate cut, the mgmt remains confident of seeing a further ~5-10bps expansion on account of a rate cut by end-FY26; it sees credit cost sustaining at current levels in the next quarter and improving Q3 onward led by its risk management strategy and early DPD bucket monitoring, which would contain the credit cost at 1.85- 1.95% (on AUF). Factoring in the management commentary and Q1FY26 results, we tweak our FY26-28 estimates – FY26E AUM growth is cut ~1%, while benefit of the rate cut would be seen over FY26-28E, resulting in a 1-3% upward revision in our EPS. We maintain ADD on the stock, while revising our Jun-26E TP upward by ~8% to Rs 1,000 (Rs925 earlier), implying FY27E standalone P/B of 5x.
Good show amid turbulent external environment
BAF reported a satisfactory quarter, in terms of AUM growth, customer acquisition, operating efficiencies, and pre-provisioning profit. Though credit cost remained elevated (2.02% on AUF), it came below expectations and resulted in a 3% PAT beat. Asset quality deteriorated marginally, with GS3 and NS3 at ~1.03% and ~0.5%, respectively, due to higher stress in the USL – BL and Auto segment (TWL/3WL). Margin (NIMs) was impacted by a different accounting treatment for income recognition between MF investment and Treasury investment which will normalize in the coming quarter; the mgmt stated that on an adjusted basis, margins would be flat. CoFs moderated by ~20bps led by the RBI rate cut; the mgmt expects further benefit as the liabilities are repriced/renewed.
Maintains broader near-to-medium term guidance, despite some uncertainties
The management maintains its of 23-24% growth despite slowing the MSME and Auto segment, which is seeing elevated stress; it indicated that other products like Gold are faring well. To manage risk in the MSME book, BAF has already restructured Rs2.19mn in loans, with scope to restructure another Rs1bn if needed; it expects healthy recoveries as such loans were primarily for business purposes. To control CoFs, the company plans to lean more on NCDs and ECBs this year. While confident to deliver risk-calibrated growth over the medium term, the management indicated it may reassess (if required) its nearterm guidance by end-Q2, depending on how MSME stress evolves.
Marginal changes to estimates; maintain ADD with Jun-26E TP of Rs1,000
Factoring in the Q1 performance and management commentary, we adjust FY26E growth downward by 1%, while increasing our EPS estimate by 1-3% on the back of improving margins; this results in 10-15bps improvement in RoA over FY26-28. We maintain ADD on the stock, with revised up Jun-26E TP to Rs1,000 (implying SA FY27E P/B of 5x).
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
