Bajaj Finance AUM growth remains robust despite NIM pressure and gold-loan risks
Bajaj Finance Ltd.
BUY
₹957
₹917.25
₹1,150
20.17%
Investment View and Valuation
Prabhudas Lilladher's October 20, 2026 Q2FY27 result update on Bajaj Finance retains a BUY recommendation. The positive view is underpinned by sustained AUM growth, resilient asset quality, prudent provisioning and a strong balance-sheet profile. However, the broker flags continued pressure on net interest margins from higher funding costs.
Prabhudas Lilladher retains a 4.0 times September 2028E price to adjusted book value multiple to derive a target price of Rs 1,150. The broker modestly cuts its FY27E, FY28E and FY29E PAT estimates by 1.1 per cent, 1.3 per cent and 2.1 per cent respectively, primarily reflecting margin pressure.
AUM Growth and Business Outlook
Bajaj Finance reported AUM growth of 26.5 per cent year on year and 6.9 per cent quarter on quarter to Rs 5,84,620 crore in Q2FY27. Growth was led by mortgages, Urban Sales Finance, Urban B2C and Rural B2C.
| Business segment | Year-on-year growth |
|---|---|
| Mortgages | 30 per cent |
| Urban Sales Finance | 43 per cent |
| Urban B2C | 19 per cent |
| Rural B2C | 29 per cent |
| MSME | 3 per cent |
MSME growth remained subdued at 3 per cent because of portfolio pruning amid elevated delinquencies. Management expects a return to double-digit MSME growth in H2FY27 as early-vintage performance improves and origination practices change.
Management guided for FY27 loan growth of 26-27 per cent and medium-term growth of 23-25 per cent. Prabhudas Lilladher builds in AUM growth of 26 per cent in FY27E and 25 per cent in FY28E, supported by deeper customer penetration, wider distribution and FINAI-led lending opportunities.
Q2FY27 Financial Performance and Margins
Q2FY27 net interest income increased 23.6 per cent year on year and 6.1 per cent quarter on quarter to Rs 13,334.7 crore. Pre-provision operating profit rose 20.6 per cent year on year to Rs 10,703.3 crore, while profit after tax increased 28.6 per cent year on year to Rs 6,366.6 crore, broadly in line with the broker's estimate.
| Metric | Q2FY27 | Reported change or comparison |
|---|---|---|
| Net interest income | Rs 13,334.7 crore | Up 23.6 per cent year on year; up 6.1 per cent quarter on quarter |
| Pre-provision operating profit | Rs 10,703.3 crore | Up 20.6 per cent year on year |
| Profit after tax | Rs 6,366.6 crore | Up 28.6 per cent year on year; broadly in line with estimate |
| Calculated NIM | 9.5 per cent | Down from 9.6 per cent in Q1FY27 |
Calculated NIM declined to 9.5 per cent from 9.6 per cent in Q1FY27 as yields moderated. Management expects FY27 NIM compression to be marginally higher than its earlier 10-15 basis point guidance as higher repo rates flow through funding costs in H2FY27. The broker forecasts NIM of about 9.5 per cent in FY27E.
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Fees, Operating Efficiency and Profitability Guidance
Management remains comfortable with 15-18 per cent medium-term fee-income growth after H1FY27 non-interest income grew 20 per cent, aided by stronger B2B businesses. Proposed insurance commission regulations are a potential fee-income headwind, while UPI MDR monetisation could provide upside.
Bajaj Finance reported an opex to net total income ratio of 33 per cent in Q2FY27 and expects a 25-40 basis point improvement in FY27 from productivity gains and operating efficiencies. Management reiterated long-term PAT growth guidance of 23-25 per cent and RoE guidance of 19-21 per cent.
Asset Quality and Credit Costs
Asset quality weakened sequentially, with GNPA and NNPA at 1.06 per cent and 0.42 per cent respectively, against 0.96 per cent and 0.39 per cent in Q1FY27. Stage 2 and Stage 3 assets increased by Rs 1,600 crore, including Rs 1,050 crore from gold loans related largely to short-tenor products discontinued in August 2026.
Bajaj Finance has moved to 9-12 month gold-loan tenors and expects to expand its gold-loan branch network to 2,700-2,800 by FY27-end. The broker notes that rural and unsecured lending risks are being managed through district-level monitoring and calibrated originations.
Management created a Rs 340 crore macro overlay for risks including El Nino and elevated crude prices, rather than for emerging portfolio stress. Prabhudas Lilladher estimates FY27E credit cost of 1.6 per cent, supported by additional provisioning buffers and improving vintage performance.
Capital Raise and Key Monitorables
The Board approved a Rs 17,500 crore capital raise comprising a Rs 11,700 crore QIP and a Rs 5,800 crore preferential issue, subject to shareholder approval. The proceeds are intended to support growth and strengthen balance-sheet resilience.
Key monitorables include:
- Funding-cost-led NIM compression
- Final insurance commission regulations
- Proposed RBI restrictions on revolver loans
- MSME delinquency trends
- Gold-loan asset quality
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
