ICICI Securities has upgraded Bajaj Finance to a buy rating with a target price of Rs 1,250. The brokerage cited strong Q1FY27 results and improved asset quality as key reasons for the positive outlook. Investors may track future updates on AUM growth and credit costs as potential triggers for further performance.
ICICI Securities has updated its outlook on Bajaj Finance, moving the stock to a buy recommendation and setting a price target of Rs 1,250. This change follows the company’s performance in the first quarter of fiscal year 2027, which came in ahead of expectations. The brokerage’s revised target represents an increase from its earlier estimate of Rs 1,000.
Factors Influencing the Revised Outlook
The brokerage pointed to solid growth in Assets Under Management (AUM) and better-than-expected credit costs as primary drivers for the upgrade. For the first quarter, Bajaj Finance reported a credit cost of 1.54%. However, analysts noted that when adjusting for a Rs 3 billion macroeconomic provision, the actual credit cost falls to 1.31%. This figure sits below the company’s own full-year guidance of 145 to 160 basis points, suggesting that the underlying asset quality is strong.
Management commentary indicates that if current trends hold through the second quarter of FY27, there is a possibility that the company could raise its AUM growth guidance, which is currently set at 22% to 24%. Portfolio stress, measured across three, six, and nine-month overdue periods, is reportedly at or below pre-pandemic levels. This points to effective risk management in the company's lending operations.
Valuation and Subsidiary Context
To determine the new price target, the brokerage valued the standalone business at 5 times its estimated price-to-book ratio for fiscal year 2028, up from the previous 4.5 times. In addition to the standalone business, the valuation accounts for the company's housing subsidiary by assigning it a value of Rs 114 per share, after applying a 20% holding company discount to the estimated market capitalization.
While this brokerage update reflects a positive view on current performance, investors should be aware that the final results will depend on the company’s ability to manage credit costs in a changing interest rate environment and maintain demand for its loan products. Like other non-banking financial companies, Bajaj Finance operates in a competitive sector where shifts in borrowing costs or regulatory changes regarding retail lending can impact margins.
The primary monitorables for investors in the coming months will be the official management updates on AUM growth targets and whether the reported credit cost levels remain stable or show signs of pressure in the upcoming quarterly filings.