JM Financial maintains Buy on Bajaj Finance, raises target price to Rs 9,500

JM Financial has maintained its Buy call on Bajaj Finance with a revised target price of Rs 9,500 (Rs 9,350 earlier). The current market price of Bajaj Finance is Rs 8675.35 .

Financials

Bajaj Finance reported Rs 45.5 billion (+19%/6% YoY/QoQ, 2% lower than JM Financial estimates) driving RoA/RoE of 4.0%/19.1%. This miss was mainly driven by higher credit cost of ~2.3% (~1.9% JM Financial estimates) as the company made a one-time additional provision of ~Rs 3.6 billion to strengthen ECL cover. Adjusting for this incremental provision, underlying credit costs would have been ~1.9%. AUM growth was healthy at ~26%/5% YoY/QoQ which along with ~10bps NIM compression led to ~22%/5% YoY/QoQ NII growth. There was a tax reduction of ~Rs 3.5 billion which largely compensated negative impact on PAT coming out of higher credit cost.


For FY26, management has guided for ~24%-25% AUM growth (25%-27% earlier), stable NIM despite CoF coming down ~10-15bps, improvement in cost to income by ~40-50bps, lower fee income growth of ~13%-15% and credit cost in the range of ~ 1.85% - 1.95% leading to RoA of 4.4%-4.6% and RoE of ~19% -20%. Moderation in FY26 guidance in growth/RoE compared to long term guidance was a major negative from the result.
The brokerage expects AUM CAGR of 24% during FY25-27E (vs 30% during FY23-25) with avg. RoA/RoE of 4%/20% during FY26/27E. We like BAF given its ability to navigate across cycles. Though, given expected moderation in growth/RoE profile, current valuation of ~4.0/21xFY27BVPS/EPS looks rich and provide limited upside in near term.

Investment Rationale
JM Financial expects AUM CAGR of 24% during FY25-27E (vs 30% during FY23-25E) with avg. RoA/RoE of 4%/20% during FY26/27E. They like BAF given its abilityto navigate across cycles. Though, given expected moderation in growth/RoE profile, current valuation of ~4.0/21xFY27BVPS/EPS looks rich and provide limited upside in near term. The brokerage maintains a BUY call on the stock with a revised target of Rs 9,500 (valuing at 22x FY27E EPS).

Promoter/FII Holdings
Promoters held 54.73 per cent stake in the company as of 31-Mar-2025, while FIIs owned 18.9 per cent, DIIs 14.77 per cent.