Bajaj Finance shares in focus after high provisions in Q3, FY26 guidance

Shares of Bajaj Finance Ltd. will be in focus on Wednesday, February 4, after the company reported its third quarter earnings, where accelerated expected credit loss provisioning emerged as a key negative for the quarter.

During the quarter, Bajaj Finance reported a one-time gain of ₹1,416 crore from the sale of a part of its stake in Bajaj Housing Finance to comply with the RBI's minimum public shareholding norms. The company continues to own 86.7% in Bajaj Housing Finance.

The gains were recognised in net worth and not routed through the consolidated profit and loss account, as Bajaj Finance remains the parent entity with majority ownership.

The lender also strengthened its ECL framework, which resulted in accelerated provisions of around ₹1,406 crore.

While net interest income and pre-provision operating profit were broadly in line with expectations, growing close to 20% year-on-year, provisions rose sharply by about ₹1,400 crore, leading to higher-than-estimated credit costs.

Profit after tax declined 6% YoY and came in 21% below consensus estimates. Excluding the impact of accelerated ECL provisions, PAT stood at ₹5,317 crore, broadly in line with expectations.

On the operating front, calculated net interest margins remained steady at 9.55% sequentially.

Credit costs, however, jumped to 3.06% from 2.01% QoQ, although excluding accelerated ECL provisions, credit costs would have declined by around 10 basis points.

Return on assets slipped to 4.3% from 4.5% in the previous quarter.

Management commentary also remained cautious. The company said the accelerated ECL provisioning was undertaken to make the balance sheet and P&L more shock-proof, adding that rising customer leverage was one of the factors considered, though not directly attributed as the sole reason.

Management reiterated growth guidance of around 22%, as against its earlier FY26 guidance of 22-23%.

On a more positive note, management indicated that despite accelerated ECL provisions, which are expected to continue for the next two to three years, credit costs are seen at 165-175 basis points in FY27.

The company also pointed to its focus on AI-led strategy implementation to lower credit costs, drive productivity gains and enable hyper-personalisation.

What brokerages are saying

Nomura has reiterated its 'Buy' rating on Bajaj Finance with a price target of ₹1,195. The brokerage has revised its credit loss assumptions to factor in rising competition and higher customer leverage

Nomura cited accelerated provisioning with new loss given default floors across products. It expects MSME growth to recover over the next two to three quarters and has guided for FY26 AUM growth of 22%.

The brokerage also flagged that the competitive landscape and customer leverage are meaningfully higher than a few years ago, prompting it to raise credit cost assumptions over FY29-40F in its residual income model.

Jefferies has maintained its 'Buy' rating with a price target of ₹1,270, retaining the stock among its top picks.

While the brokerage has cut its FY26 profit estimates due to one-off items, it has tweaked projections for FY27 and FY28 and continues to see a 24% CAGR in profit over the period.

Morgan Stanley has reiterated its 'Overweight' rating with a price target of ₹1,195.

The brokerage expects credit costs to fall sharply as the flow of new stressed loans continues to decline, which should eventually support stronger credit growth.

It added that improved coverage has led to a cut in headline FY26 estimates, though underlying EPS forecasts remain largely unchanged, with profit CAGR of over 25% during FY26-28.

CLSA has retained its 'Outperform' rating on Bajaj Finance with a price target of ₹1,200.

Bernstein, meanwhile, has an 'Underperform' rating on the stock with a price target of ₹750.

Bajaj Finance shares ended Tuesday session 6.67% higher at ₹964. The stock is flat on a year-to-date basis.