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HDFC Securities Institutional Equities
Bajaj Finance - Accelerated provisioning dents earnings
Bajaj Finance Ltd.'s Q3 FY26 PAT declined by 6% YoY due to accelerated provisioning of Rs 1,400 crore (0.3% of gross advances), given the implementation of minimum LGD floor across businesses. Adjusted for this one-off, operating performance remained steady with AUM growth of 22% YoY, steady NIMs (~9%), marginal normalization in credit costs (1.92%), and robust profitability (RoE of 19.7%).
Management has indicated improvement in credit costs during FY27 to sub-1.8%, along with pick-up in the MSME segment.
While Bajaj Finance's credit costs normalisation has been protracted compared to historical trends, overall profitability is likely to remain best-in-class along with healthy loan growth, driving premium valuation vs. peers.
HDFC Securities revises its FY26/FY27E/FY28E earnings estimates to adjust for accelerated provisioning and marginally lower loan growth and maintain Buy with a revised RI-based target price of Rs 1,070 (implying 4.5x Sep-27 adjusted book-value per share; 23x Sep-27 earnings per share.
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