Bajaj Finance Q1 FY27 earnings beat as AUM growth and credit quality strengthen

Investment View and Rating

Deven Choksey Research retained its ACCUMULATE rating on Bajaj Finance Ltd. after the July 31, 2026 Q1 FY27 result update. The broker characterised the quarter as a clean, broad-based earnings beat and said management described it as the company’s strongest quarter in six to seven quarters.

The investment thesis rests on structurally improving asset quality, re-accelerating growth across secured lending and consumer franchises, and resilient margins. However, a sharp post-result re-rating has shifted the debate towards valuation and reduced the available margin of safety.

Q1 FY27 Financial Performance

Bajaj Finance reported net profit of Rs 6,081 crore, up 22.5 per cent year on year and ahead of consensus of about Rs 5,790 crore. The beat was primarily driven by benign credit cost at 1.5 per cent of average assets under management, versus the Street estimate of about 1.65 per cent.

AUM Growth and Business Momentum

AUM grew 24 per cent year on year to Rs 5.10 lakh crore, supported by a record quarterly addition of Rs 37,000 crore. New loan bookings rose 20 per cent to 16.1 million. Rural consumer finance and urban consumer finance grew 49 per cent and 38 per cent, respectively.

The gold-loan book, at 4 per cent of AUM, is scaling towards Rs 29,000 crore to Rs 31,000 crore, supported by plans for 2,700 to 3,000 branches. The customer base rose by 5 million in the quarter to 124.4 million.

Management raised its FY27 new-customer acquisition target to 18 million to 20 million from 15 million to 17 million, while retaining its 22 per cent to 24 per cent AUM-growth guidance with an upward bias. Following portfolio recalibration, management expects the MSME business to return to growth by Q3 FY27.

Asset Quality and Credit Costs

Asset quality improved, with gross non-performing assets at 0.96 per cent and net non-performing assets at 0.39 per cent. Provision coverage was 60 per cent.

Loan loss to average AUM improved to 1.54 per cent from 1.87 per cent a year earlier and was 1.31 per cent excluding a Rs 296 crore management and macroeconomic overlay for geopolitical and monsoon uncertainties. Stage 2 and Stage 3 assets improved to 1.87 per cent from 1.94 per cent, while loan vintages tracked at or below pre-COVID levels.

Management is retaining the benefits from improving credit performance through higher provisioning and overlays as it prepares to scale the loan book to Rs 6.3 lakh crore to Rs 6.5 lakh crore, rather than maximising near-term earnings.

Margins, Funding and Capital Position

Net interest margin was stable in Q1 FY27, aided by the consumer-durables financing mix and elevated liquidity. Management guides for moderation of 10 to 15 basis points over FY27 and broadly range-bound funding costs, albeit with a modest upward bias.

Deposits reached Rs 68,500 crore, about 15 per cent of the balance sheet. Management expects operating leverage to improve the cost-to-income ratio by 25 to 40 basis points during FY27. Capital adequacy was 21 per cent and leverage was 4.9 times; management sees no immediate need for fresh capital.

Valuation and Target Price

Deven Choksey Research values Bajaj Finance at 4.8 times FY28E adjusted book value per share of Rs 250, deriving a target price of Rs 1,211. The valuation is supported by the broker’s view of best-in-class profitability, improving credit quality and re-accelerating growth.

Key Risks

• Further macroeconomic overlays arising from geopolitical tension or an uncertain monsoon.
• A sustained increase in market borrowing rates beyond management expectations, which could pressure margins beyond the guided range.
• A delayed MSME recovery that could weaken AUM growth.