Buy Bajaj Finance; target of Rs 9000: Emkay Global Financial

Emkay Global Financial's research report on Bajaj Finance

Bajaj Finance (BAF) reported satisfactory results in Q1FY25, wherein AUM and PPoP were largely in line with consensus/our estimates; but the prolonged electoral activity-led disruptions in collections caused an increase in credit cost (~2.12% of Assets Under Finance) that drove a ~4% miss on our PAT estimate. The management maintained guidance of ~26-28% AUM growth and ~1.75- 1.85% credit cost for FY25, with an upward bias in credit cost. To reflect the Q1 developments and management commentary, we have adjusted our FY25-27 estimates, leading to a ~2% cut in earnings owing to ~12bps increase in credit cost to ~1.9%. BAF shares have underperformed the NIFTY by ~15% in the last 3 months, and the current blip in credit cost seems to be already priced-in.

Outlook

Given ~4% RoA and >20% RoE with the over 20% earnings growth intact, we reiterate our BUY rating on the stock, with revised down Jun-25E TP to Rs9,000/sh (vs Rs9,300 earlier), implying FY26E P/BV of 5.1x.