Bajaj Finance (BAF) Research Report

Key Highlights

• Bajaj Finance (BAF) is prioritizing balance sheet resilience over near-term growth, sacrificing short-term gains to protect long-term asset quality.
• The company has adopted a proactive risk strategy, tightening underwriting standards in MSME and unsecured segments to mitigate potential risks.
• Growth moderation in FY26 was driven by MSME weakness, captive 2W/3W portfolio reduction, and increased competition in housing.

Growth Expectations

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• Growth is expected to re-accelerate from FY27, driven by:
  • MSME normalization, with momentum expected to pick up in 2HFY27.
  • Secured product momentum.
  • Cross-sell-led expansion.
• This is expected to foster a more efficient and profitable growth trajectory over time.

Asset Quality and Credit Costs

• BAF has adopted a more conservative stance on asset quality, focusing on strengthening balance sheet resilience.
• Early delinquency trends (3MOB/6MOB) are improving across vintages.
• Credit costs (as a % of loans) are expected to normalize to ~1.7-1.8% in FY27-28E (vs. 2.2%, including accelerated ECL provisions in FY26E).

Valuation and Outlook

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• BAF trades at:
  • 3.7x FY27E Price-to-Book Value (P/BV).
  • 20x Price-to-Earnings (P/E) for a PAT Compound Annual Growth Rate (CAGR) of ~28% over FY26-FY28E.
• Return on Assets (RoA) and Return on Equity (RoE) are expected to be 4.2% and 21% in FY28E, respectively.
• We reiterate our Neutral rating on the stock with a Target Price (TP) of INR900 (premised on 3.6x Dec’27E Book Value Per Share (BVPS)).