Bajaj Finance

Investment case

Highest-ROE scaled lender

Why this business

India's largest private-sector NBFC, lending to retail, SME and commercial customers across urban and rural India with a consolidated AUM of Rs 5.47 lakh crore (Jun-2026, +24% YoY) and 16.1 million new loans booked in Q1FY27 alone. It owns 86.7% of Bajaj Housing Finance (AUM Rs 1.50 lakh crore) after selling 2% in Dec-2025, and books around 18-20 million new customers a year. Its consumer-durable/EMI-card franchise, cross-sell ecosystem and 9.6% NIM give it best-in-class ROA (FY27 guidance 4.3-4.7%) among large Indian lenders.

What we believe

1. 01Growth engine intact: AUM +24% YoY to Rs 5.47 lakh cr in Q1FY27 with FY27 guidance of 23-25% AUM and 23-24% PAT growth; new customer target raised to 18-20 mn.
2. 02Credit cycle turning: annualised credit cost fell to 1.54% in Q1FY27 (1.31% ex-provisions) from FY26 guidance of 1.85-1.95%; GNPA 0.96%, NNPA 0.39%; FY27 corridor 1.45-1.60%.
3. 03Self-inflicted stress is behind: unsecured MSME volumes were cut 25% in Nov-2025 (MSME AUM growth 2-6%) and captive 2W/3W (1.5% of AUM but 9% of losses) is phased out to <1% of AUM; gold loans (+112% to Rs 21,152 cr) and CV/tractor (+102%) replace them.
4. 04Best-in-class profitability: NIM 9.6% (Q4FY26), FY27 ROA guidance 4.3-4.7% and ROE 19-21% (annualised 20.4% in Q1FY27) versus Chola/Shriram in the 16-19% ROE range.
5. 05Leadership continuity: Rajeev Jain reinstated as Executive Vice-Chairman & MD until 31-Mar-2028 after MD Anup Saha resigned on 21-Jul-2025; 16 of 21 brokers rate it Buy (Bloomberg consensus TP Rs 1,145).

Why now

Trades at 32x TTM PE and 5.8x P/B (screener, 8-Sep-2026) versus a 10-year profit CAGR of 31%; screener flags the 5.8x book multiple as rich. Five-year average multiple not sourced. EV/EBITDA n.m.; dividend yield 0.5%.

Market disagreement

• Cholamandalam Investment & Finance: Chola (27x PE, 5.2x P/B, ROE 19.4%, Q1FY27 PAT +46%) is similarly priced but is a vehicle-finance-heavy lender with a smaller cross-sell franchise; Bajaj offers larger scale (AUM 5.5 lakh cr), higher ROA (4.3-4.7% guidance) and a diversified 20+ product engine at a comparable 32x/5.8x.
• Shriram Finance: Shriram is cheaper (21.6x PE, 3.0x P/B, ROE 16.4%) but is a CV/used-vehicle lender with structurally higher credit costs and lower ROA; Bajaj's premium is paid for 9.6% NIM, sub-1% GNPA and 30%+ ten-year profit CAGR.
• HDB Financial Services: HDB (26x PE, ROE 14.7%, stock -11% over 1 year post-IPO) has lower ROE, a thinner NIM and no comparable consumer-durable/EMI ecosystem; Bajaj's 20%+ ROE and 24% AUM growth justify its higher multiple.

Position sizing

Core Large cap  3.5% of the PMS on $31 Jul 2026 (August rank 5). Core positions are owned through the cycle for leadership and cash-flow quality.

Catalysts

• Q2FY27 results (late Oct-2026): possible downward revision of FY27 credit-cost corridor (1.45-1.60%) if MSME normalises as guided (double-digit growth by H2FY27).
• Further Bajaj Housing Finance stake sale to meet minimum public shareholding (holding 86.7% after Dec-2025 2% sale at Rs 95.31; ~Rs 1,588 cr raised) - special dividend precedent (Rs 0.60/share in FY26).
• RBI rate-cut transmission lowering cost of funds (7.40% consolidated in Q1FY27) and any easing of unsecured-loan risk weights.

Risks and response

• Valuation: 5.8x book and ~32x TTM leaves little room for a miss; Bernstein (Underperform, Rs 840), Macquarie (Sell, Rs 850) and Ambit (Sell, Rs 815) argue the multiple caps upside.
• Renewed unsecured stress: MSME book still growing only +2% YoY and management wants 'another quarter' before revising credit-cost guidance; West-Asia conflict/geopolitical shocks could re-ignite retail delinquencies.
• Succession: Rajeev Jain's term runs only to Mar-2028 after the abrupt Jul-2025 exit of MD Anup Saha; a second leadership reset in 18 months would hit the multiple.

Thesis-break conditions

Not stated separately on this page; the risk list carries the monitoring triggers.

Review history

• 8 Sep 2026 · Yash Palod · one-pager in "Why We Own What We Own" (p40) · portfolio as of $31 Jul 2026
• 31 Aug 2026 · Classification in the August top-30: Core

Source: Buoyant_Why_We_Own_What_We_Own_Sep2026.pdf (portfolio as of 31 July 2026), p40. Internal; external publication of these fields is controlled by audience policy.