Bajaj Fin stock fully priced amid some challenges, opportunities

Bajaj Finance's (BAF’s) earnings forthe first quarter of 2025-26 (Q1FY26) were in line with estimates, with growth of 24.6 percent year-on-year (Y-0-Y) in assets under management (AUM) and higher ‘operating efficiency.

- DEVANGSHU DATTA.

However, lower other income and high credit costs offset these positives to some extent.

Credit cost rose to 2.02 per cent versus 1.97 percent (adjusted) in Q4FY25, and the management indicated stress in the micro, small, and medium enterprises (MSME) portfolio (approximately 12 per cent of AUM) due tomacroeconomic slowdown. BAF’s results are reflecting higher efficiency gains (cost-to-income ratio at 33 per cent and opex-to-AUM at 3.8 percent), which may be sustained until FY27.

AUMis expected to continue growing at mid-20s rates while delivering good profitability. Opex stands for operating expenses. BAF’s margins are expected toimprove by 10 basis points (bps) in FY26 due to lower cost of finance (CoF). Management guides for the CoF at7.6-7.65 per cent in FY26, versus 7.79 per cent reported in Q1. BAF plans to reduce dependence on deposits to 15-16 per cent versus current 17-19 per cent. BAF has also cut deposit rates by 70-80 bps. Tt will look to increase share of external commercial borrowings (ECB), nonconvertible debentures (NCDs), and bank borrowings to improve CoF. BAF’s net interest margin (NIM) (as calculated) may range between 8.9 per cent and 9 percent over FY26-FY28, given the expectation of faster transmission of rate cuts asthe AUM mix changes.