Bajaj Finance AUM growth and improving asset quality support earnings outlook

Investment View and Valuation

ICICI Securities maintains a BUY rating on Bajaj Finance in its July 31, 2026 result update. The positive thesis is based on monetisation of Bajaj Finance’s large customer franchise, greater wallet share through FINAI-led artificial intelligence cross-selling and digital platforms, and improving asset quality that could structurally moderate credit costs.

The broker raised its target price to Rs 1,290 from Rs 1,150. The standalone business is valued at about 4.4 times FY28E book value, while subsidiaries are assigned a value of Rs 119 per share.

Strong Q1FY27 Financial Performance

Bajaj Finance reported a strong Q1FY27, with consolidated assets under management (AUM) rising 24 per cent year on year to Rs 5,46,944 crore. The company added Rs 36,969 crore of AUM during the quarter, while its customer franchise reached 12.44 crore after adding 51 lakh customers.

Improving Asset Quality and Strong Capitalisation

Asset quality improved despite a prudent Rs 296 crore management and macroeconomic overlay provision for geopolitical and monsoon-related uncertainty. Gross loan loss to average AUM declined to 1.54 per cent from 1.87 per cent a year earlier, and stood at 1.31 per cent excluding the overlay.

Gross and net non-performing assets improved to 0.96 per cent and 0.39 per cent, respectively. Stage 2 and Stage 3 assets as a proportion of AUM declined to 1.87 per cent from 1.94 per cent in Q4FY26. Management said 3MOB, 6MOB and 9MOB vintage performance remained better than the FY20 pre-COVID benchmark.

Provision coverage was 60 per cent, capital adequacy was 20.9 per cent and Tier-I capital was 20 per cent. The business-loan portfolio showed a marginal credit-quality blip, which management attributed to vintage-mix effects rather than underlying deterioration.

Growth Guidance and Portfolio Trends

Management retained its FY27 AUM-growth guidance of 22-24 per cent and will consider any revision after Q2FY27. It expects to book 6-6.2 crore new loans, add 1.8-2 crore customers and open 150-175 locations in FY27.

Gold-loan AUM grew 112 per cent year on year and accounted for about 4 per cent of AUM. Management guides for 2,700-2,800 gold-loan branches, potentially reaching 3,000, and gold-loan AUM of Rs 29,000-31,000 crore by FY27-end.

Rural and urban consumer finance grew 49 per cent and 38 per cent year on year, respectively. MSME AUM grew only 2 per cent because of risk-driven pruning, while management expects MSME growth to recover by Q3FY27.

Funding, Margins and Operating Trends

Funding and operating trends were broadly supportive. Deposits stood at Rs 68,534 crore, representing 15 per cent of consolidated borrowings. The liquidity buffer was Rs 17,847 crore, while cost of funds improved by 1 basis point quarter on quarter to 7.4 per cent.

Management retained its FY27 margin guidance for moderation of 10-15 basis points, while noting a slight upward bias in funding costs amid West Asia tensions and monsoon-linked inflation. Opex-to-NTI was 33.4 per cent, affected by accelerated gold-loan and MFI branch investments and the new labour code. Management nevertheless reiterated its guidance for a 25-40 basis-point improvement in FY27.

FINAI, Digital Platforms and Earnings Outlook

FINAI and digital platforms are important growth drivers. Artificial intelligence voice and text bots generated Rs 2,551 crore of Q1 disbursements, with FY27 guidance of Rs 11,000-12,000 crore. Digital-platform business volume is guided at Rs 45,000-47,000 crore in FY27.

ICICI Securities forecasts FY27E and FY28E net profit of Rs 23,409 crore and Rs 28,168 crore, respectively.

Key Risks

• A growth-versus-margin trade-off could affect the earnings outlook.
• Volatility in credit costs could affect earnings.