Bajaj Finance Q1 Review: MSME Stress Test — Should You Buy Or Sell?
Despite sectoral stress, Bajaj Finance remains a top pick for Jefferies, while Macquarie urges caution.
Bajaj Finance Ltd. posted a 22% year-on-year rise in net profit for Q1 FY26, driven by strong loan growth and rising net interest income. However, a common theme across brokerage reviews, Jefferies and Macquarie, was concern over rising stress in the MSME loan segment, which could weigh on credit costs and growth guidance in the coming quarters.
The company reported a net profit of Rs 4,765 crore, up from Rs 3,940 crore in the previous quarter. Net interest income rose 22% year-on-year to Rs 10,227 crore, while assets under management grew 25% year-on-year to Rs 4.41 lakh crore. Despite these positives, loan losses and provisions surged 26% year-on-year to Rs 2,120 crore, and gross NPAs rose to 1.03% from 0.96% in Q4.
Jefferies On Bajaj Finance
Jefferies maintained a ‘Buy’ rating, acknowledging the strong performance but cautioning about emerging risks. “BAF’s profit of Rs 4,800 crore, up 22% year-on-year, was inline with estimates with strong loan growth of 25%,” the brokerage noted.
However, it flagged concerns in the MSME segment stating, “Asset quality was slightly disappointing due to pressure in MSME segment (12% of loans) where BAF has also restructured loans and credit cost towards that lifted overall credit costs to 2% of avg loans.”
Jefferies added, “Slower economic growth and leverage amongst borrowers is showing signs of incipient stress leading to weaker trends across most sub-segments.” Despite this, it noted the company’s diversified loan mix and said, “Segments like gold loans, car loans, LAP, commercial vehicles could partly compensate for MSME, 2W, and MFI pressures.”
The brokerage trimmed its FY26–28 earnings estimates by 1–2%, but retained its price target of Rs 1,100, citing strong fundamentals, “We see a healthy growth of 23% in AUMs over FY25–28, earnings compound annual growth rate of 23% and ROE of 20%.”
Macquarie On Bajaj Finance
Macquarie took a more cautious stance, maintaining an ‘Underperform’ rating. “BAF reported 22% year-on-year profit after tax growth at Rs 4,800 crore, which was mostly in line with our estimates,” it said, but added, “Stress in SME segment results in high credit costs.”
The brokerage highlighted that credit costs stood at 2.02%, slightly below its estimate of 2.15%, but still elevated. “High credit costs were driven by increase in Stage 3 (up 7bps QoQ), in SME (up 28bps QoQ), auto finance (up 135bps QoQ), and rural B2C segment (up 16bps QoQ),” Macquarie noted.
It also flagged political risks in certain geographies, “Unsecured book in areas like Karnataka and Tamil Nadu is prone to political risks. This was not seen in commentary from banks.”
On growth, Macquarie warned, “BAF’s current asset quality commentary and its cautious underwriting approach implies downside risk to its current growth guidance.” It believes the stock’s valuation, 4.4 times FY27E price-to-book ratio already factors in aggressive growth assumptions, which may not hold.
