Bajaj Finance’s standalone June-quarter (Q1FY27) results held a bigger positive surprise for investors than its consolidated numbers. Annualized standalone net interest margin (NIM) expanded 18 basis points (bps) year-on-year to 12.04%, based on Mint calculations. Consequently, net interest income (NII) rose 24% to ₹11,495 crore, outpacing the 22% growth in average assets under finance (AUF).
Urban personal loans grew 19%, rural personal loans 27%, while gold loans more than doubled on a smaller base to ₹21,200 crore.
The Street welcomed the performance, with the stock rising over 6% in early Friday trade to hit a record high of ₹1,124.60.
Standalone performance deserves closer attention because it houses Bajaj Finance’s higher-yielding businesses—consumer, MSME, personal and gold loans—which generate superior NIMs and return on assets (RoA). By contrast, its listed subsidiary, Bajaj Housing Finance, in which it owns 87%, primarily lends against mortgages, a lower-risk but lower-return business with an independent valuation.
Credit surprise
The biggest surprise came from credit costs.
Provisions for bad loans inched up just marginally by 2% year-on-year to ₹1,977 crore, which is negligible given the 22% growth in average AUF.
Bajaj Finance’s profit before tax grew by 29% year-on-year to ₹7,163 crore in Q1FY27. In fact, earnings growth could have been higher as the credit cost would have dropped year-on-year, had the management decided not to make an extra provision of ₹296 crore towards prudent management and macro-economic concerns.
How did Bajaj Finance manage to keep such low credit cost? During the earnings call, the management said that a continued emphasis on credit discipline helped in having low bad debts. It further added that the loan book performance has improved and credit cost (excluding prudent provision) at 1.3% is the lowest since covid-19.
Profit engine
The combination of higher NIM and contained credit costs pushed return on equity (RoE) up 180bps year-on-year to 20.2%.
Responding to a question on whether RoE could rise to 24% over the next few years, management said improvements could come through AI-led efficiencies and greater customer centricity. However, it stopped short of giving a target, stressing that sustaining return ratio is more important than maximizing it in the near term.
Bajaj Finance retained its FY27 consolidated AUM growth guidance of 22-24%, saying it would review momentum after Q2 before making any changes. It is slightly cautious on margins and expects a moderation of 10-15 bps in FY27 as there is an upward bias in cost of funds.
Bajaj Finance expects operating-expenses-to-net-income to improve by 25-40 bps in FY27 as investments in branch network pays off. Consequently, profit before tax should continue to grow faster than asset growth over time as has been the case in Q1FY27.
Valuation comfort
A modest NIM compression appears manageable. However, Bajaj Finance is not immune to a deterioration in asset quality if macroeconomic conditions worsen, particularly amid risks from the West Asia crisis and an uneven monsoon.
After adjusting for the value of its 87% stake in Bajaj Housing Finance, Bajaj Finance’s standalone business trades at about 21 times FY28 estimated earnings, based on Bloomberg consensus. Given its consistent growth track record and ability to sustain high RoE, valuations still appear attractive for long-term investors.
