Target: ₹9,700

CMP: ₹7,871.10

Bajaj Finance has delivered a 2 per cent miss on our earnings expectation, underpinned by more-than-expected NIM decline. Credit cost was similar to Q1FY24, with higher flows from Stage-2 (seen in B2C and SME portfolios) and enhancement of Stage-3 coverage. RoA/RoE were maintained at higher levels of 5.2/24 per cent. The company remains confident of adding 13-14mn new customers and about delivering a strong AUM growth in FY24, after having delivered the best growth in H1 in the past 4-5 years.

Factoring of capital raise, raising of AUM growth assumptions, and marginal downward tweaking of spreads underpin minor net upgrade in EPS estimates and significant increase in ABV estimates.

We expect a 28–30 per cent AUM/earnings CAGR over FY23–26, with an average RoA/RoE delivery of 4.7/23 percent. The stock is trading near its long-term mean valuation (1-yr rolling fwd. P/ABV of 5.9x), and there is headroom for re-rating with the persistence of robust growth and RoE delivery.

Bajaj Finance has exhibited resilience in growth and profitability through various phases of competition, economic cycles/events and liquidity, underpinned by a dominant market position in focused segments, an agile business approach, and the addition of new growth segments.