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Strong Fourth Quarter Performance
Bajaj Finance announced strong fourth-quarter results, with its profit after tax (PAT) reaching ₹54.6 billion, exceeding analyst expectations. Lower credit costs, which fell to 1.6%, significantly boosted profitability. Management expressed confidence in further credit cost improvements, anticipating positive trends. The company is entering fiscal year 2027 with solid credit performance and management initiatives. Bajaj Finance shares are currently trading around ₹7200, with higher than average volume today, though the stock is slightly down.
Valuation Concerns Compared to Peers
Despite these encouraging operational results and positive guidance, Emkay Global Financial reiterated its 'REDUCE' rating. The brokerage raised its target price by about 6% to ₹950, from ₹900 previously. This revised target implies a Price-to-Book (P/B) multiple of 4.2 times for fiscal year 2028. This valuation is considerably higher than traditional banking peers like HDFC Bank (trading around 2.5x P/B) and ICICI Bank (around 3x P/B). While Bajaj Finance's projected 22-24% AUM growth for FY27 is robust for the financial sector, its persistently high valuation requires close examination.
Mixed Analyst Outlook
Emkay's continued 'REDUCE' rating signals underlying risks that may not be fully reflected in current market sentiment. The premium P/B multiple could compress if growth slows or if regulations for Non-Banking Financial Companies (NBFCs) intensify. Although management projects improved credit costs, any rise in late payments could quickly reduce profits. The sector also faces economic uncertainties, including potential shifts in interest rate policies. Emkay adjusted its EPS estimates for FY27-28 upwards by 4-8% to account for the results and outlook. However, this cautious stance from Emkay contrasts sharply with other analysts. For example, Prabhudas Lilladher maintains a 'BUY' rating with a target of ₹11,000. This divergence suggests differing views on whether Bajaj Finance's growth prospects justify its current market valuation.