Broker’s call: Bajaj Finance (Outperform)

Target: ₹10,700

CMP: ₹8,948.75

In a weak overall market, Bajaj Finance stock has rallied by 30 per cent in YTD 2025. The higher-than-expected credit cost number of c212bps in 3QFY25 also did not dampen enthusiasm. Guidance of long-term credit cost levels at 180-190bps and an indication of improving trajectory on collections (including a strong Jan-25), seem to have boosted investors’ confidence.

We found the market’s earlier reaction to the credit cost increase in 9MFY25 to be overdone, in the context of a high pre- tax ROA buffer, even at the peak of the borrowing cost hardening cycle. This was especially true given BAF’s past collection track record, the segment-specific nature of the problems (segment exposure limited to about a tenth of loans) and its proven ability to experiment small in many segments and dispassionately cull failed attempts.

Our 3 per cent increase in FY26-27E earnings come from building in greater visibility on monetary easing and the benefit to the company’s NIM. Admittedly, valuation at 4.9xFY26E P/B is no longer as compelling as earlier. We roll forward our valuation to Q3-FY27E (from 2QFY27E) and our target P/B multiple of 5x (unchanged) remains firmly in our comfort zone.

We see our view changing only if our opinion on the growth runway for BAF’s ability to execute on the opportunity changes.