Buy Bajaj Finance; target of Rs 8800: Emkay Global Financial

Emkay Global Financial's research report on Bajaj Finance

Driven by sustained elevated credit costs (Q2 gross credit cost-to-AUF: 2.16%; Q1: 2.12%), Bajaj Finance (BAF) reported a slight miss on profitability with consolidated PAT of Rs40bn coming slightly lower than consensus/our estimates. The elevated credit cost in H1 led to the management revising FY25 credit-cost guidance to 2.05% from 1.85% earlier; however, management seeing credit cost peaking in H1 is the silver lining. To reflect the Q2 developments and management commentary, we have adjusted our FY25-27 estimates, which leads to a ~4% cut in earnings. BAF shares have materially underperformed the NIFTY index in the last 12 months, and after the listing of Bajaj Housing, standalone BAF shares are trading at FY26E P/B of 3.7x.

Outlook

Given the ~4% RoA and >20% RoE along with the >20% earnings growth still intact, we reiterate BUY on the stock, and revise down Sep-25E TP to Rs8,800 (vs Rs9,300 earlier), implying consolidated FY26E P/BV of 4.8x.