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FY27 Outlook: Focus on Efficiency for Stronger Returns
Bajaj Finance has outlined its financial plan for fiscal year 2027, forecasting lower credit costs between 145-160 basis points. This projection is supported by expected improvements in asset quality and favorable credit cycle conditions. The company is also reiterating its commitment to long-term return goals, aiming for a Return on Assets (RoA) of 4.3% to 4.7%. A core part of this strategy is boosting operating efficiency, rather than relying on higher interest margins, to drive future returns. This approach aligns with its performance history, where RoA has remained strong across economic cycles, hitting 5.1% in FY23 and currently standing at 4.6%. The current RoA suggests there is enough room to maintain these levels without needing to aggressively widen net interest margins.
MSME Portfolio Trimmed, Risk Management Key
The company is strategically reducing its Micro, Small, and Medium Enterprises (MSME) portfolio. Its share of the total book is being cut by about six percentage points from roughly 35%. Management expects this segment to stabilize, with growth expected to resume gradually. This move indicates a focus on managing portfolio risk and optimizing capital use. Notably, the guidance on credit costs and overall performance explicitly excludes any potential impact from geopolitical developments, suggesting a conservative strategy based on current operating conditions. Vice Chairman Rajiv Bajaj commented that the company starts the year with "tailwinds on credit costs and sufficient momentum to navigate any potential weakening in the macro environment."
Peer Benchmarks and Economic Landscape
Bajaj Finance's targeted RoA of 4.3-4.7% stands out when compared to industry peers. For instance, L&T Finance aims for a 3.0-3.2% RoA by FY28, Bandhan Bank targets 1.5-1.6% for FY27, and Piramal Finance expects its RoA to reach 2.5% by Q4 FY27. This positioning suggests Bajaj Finance is set for higher profitability within the non-banking financial company (NBFC) sector. India's economy is expected to grow, with GDP projected at 6.5-6.8% for FY26-27, bolstered by domestic strength and government spending. However, geopolitical risks and supply chain issues could pose challenges. The NBFC funding mix is also evolving, with companies increasingly relying on bank loans as bond yields rise and external borrowing is limited by geopolitical uncertainty.
Potential Challenges and Analyst Sentiment
Despite the positive outlook driven by asset quality and efficiency, several factors call for caution. The guidance deliberately omits geopolitical risks, a significant unknown that could challenge the company's expected "tailwinds." The reduction in the MSME portfolio, while aimed at stability, might also signal underlying concerns about the segment's future profitability or risk profile amid economic uncertainty, contrasting with general industry expectations for NBFC growth.
Recent Q4 FY26 results showed a 22% year-on-year profit increase to ₹5,553 crore, but some observers noted that net interest income growth fell short of forecasts. A major leadership change is also on the horizon, as Rajiv Bajaj will not seek re-election to the board, potentially impacting management continuity. Historically, the stock's performance and corporate actions around April 2025 suggested strong gains, leading to the current price of ~₹930 on April 29, 2026, reflecting a different valuation base. Competitors like Piramal Finance aim to maintain credit costs near 1.5%, within Bajaj Finance's guided range, but Piramal's higher RoA target requires consistent execution.
Analysts, however, remain largely optimistic. The consensus rating is a "Buy," with average 12-month price targets suggesting over 13% potential upside from the current stock price. Recent upgrades came from Nirmal Bang and Kotak Securities, while Nomura maintained its "Buy" rating and target. The company's stock performance will largely depend on its ability to achieve its stated RoA targets, effectively manage its MSME portfolio, and navigate the uncertain geopolitical climate.