Balancing Growth Velocity with Credit Discipline
Bajaj Finance faces its first real test under a revised guidance regime: can it sustain 22-23% AUM growth while keeping credit costs on a downward path? The Street is constructive, but capital dilution and MSME normalization are in the frame.
What to Expect
Bajaj Finance enters Q2 FY-2027 under revised guidance: 22-23% AUM growth (down from the prior 24-25% guidance issued in Q4), paired with a trajectory of moderating credit costs (guided 145-160 bps on a new net basis vs 217 bps in Q2 FY-2026). The headline tension is whether growth momentum holds while asset quality improves. The company has signalled confidence through a large capital raise (₹17,500 Cr), but execution on both growth and credit discipline is now being stress-tested.
~22-23% YoY
Revised guidance from 24-25%; Q1 FY27 ran 26.5% (above guidance)
~26-28% YoY
Q1 FY27 posted 26% growth; mortgage and SME normalizing
~18-22% YoY
FY27 EPS consensus ₹40 (+29% full-year); quarterly pacing depends on credit costs
~140-160 bps
FY27 guidance; Q4 FY26 ran 165 bps; Q2 FY26 was 217 bps
~0.9-1.1% (GNPA)
Q4 FY26 GNPA 1.01%, NNPA 0.41%; asset quality stable
~19-20% (FY27 guide)
Dilution from capital raise to be balanced by growth and leverage
A strong print would show: AUM growth ≥ 24% (above guidance midpoint), PAT growth ≥ 20%, credit costs running below 150 bps, and customer franchise (currently 128.85M) pushing above 130M. Critically, MSME and mortgage segments would need to show uptick momentum into Q3, validating management's inflection narrative. Opex/NTI would improve toward the 33-33.4% band (vs 33.8% baseline). A weak print would flag: AUM growth below 21% (missing revised guidance), PAT growth < 15%, credit costs sticky above 160 bps, franchise growth stalling, or NPA creep above 1.2% GNPA. Any forward guidance walk would signal stress.
On Track for Full-Year Guidance?
Bajaj Finance is tracking broadly in line with FY27 guidance on growth (Q1 FY27 AUM grew 26.5%, above the 22-23% revised band, suggesting cushion). The fulcrum is credit cost — the company has guided 145-160 bps on a new net basis for the full year, vs an average ~190 bps run-rate last year. Q4 FY26 and Q1 FY27 have both shown moderation (165 bps, then implied lower), so the bar for Q2 is execution on that downward path. RoE guidance of 19-20% assumes both growth and leverage, but the capital raise (₹17,500 Cr, mostly equity) will dilute EPS near-term; Street consensus at ₹40 full-year EPS reflects this. Key question: does the new equity fund incremental AUM without margin pressure, or does the mix shift to lower-ROE segments?
What the Street Says
Since Last Quarter: Filings & Corporate Actions
Capital Raise (Oct 1): Board approved ₹17,500 Cr in new equity and warrants — ₹11,700 Cr via QIP, up to ₹5,75,25,985 preferential warrants. This signals confidence in growth but introduces dilution (estimates suggest 3-5% EPS dilution until integration gains offset). EGM scheduled Nov 2 for shareholder approval.
NCD Allotments: Series of debt allotments since Aug (₹5,000 Cr on Aug 27, ₹498 Cr on Aug 18, ₹1,115 Cr on Aug 10, ₹1,152.64 Cr on Jul 23, ₹2,050 Cr on Sep 8, ₹510.86 Cr on Oct 9). Total funnel ~₹11,000+ Cr of new debt to fund AUM growth. This is routine for Bajaj Finance's funding model, but the scale and pace underscore the growth ambition and reliance on debt markets.
Management Change: Amit Raghuvanshi (President, Cars/Two-Wheeler & Sales Finance) resigned effective Aug 11, 2026. No replacement announced yet. This is a mid-level departure but worth noting given the sales finance portfolio's importance to new loan origination. No material red flag, but execution continuity is watch.
Ownership Moves: FII holdings dropped 112 bps QoQ to 20.21% (from 21.33% in Q1 FY27). This mirrors broader FII outflow from India in Sept-Oct and is not company-specific, but the decline is worth tracking for any sustained rotation out. Block deals in Jun 2026 were routine fund transfers (GPIF-linked trusts).
Office Relocation (Sep 1): Registered office moved to Pune (Viman Nagar). Administrative, no impact on operations.
Key Watch Items on Result Day
1 · AUM growth vs. revised 22-23% guidance
Miss here ( 24%) keeps momentum alive and justifies capital raise pace.
2 · Credit cost trajectory and GNPA/NNPA levels
The offsetting force: if credit costs don't fall through 155 bps, or if NPA upticks above 1.1% GNPA, the earnings quality story weakens. Management's inflation narrative rests on cost moderation.
3 · MSME and mortgage mix in new originations
Are these segments actually inflecting (>15% growth) or are they still dragging? This validates the inflection thesis guiding into Q3-Q4. Early data from the Oct 3 business update showed 26.5% AUM growth overall, but segment breakout is key.
4 · Net Interest Margin (NIM) and opex/NTI
Margin is under pressure from a funding cost hike cycle (RBI held rates in Oct, but market rates are sticky). If NIM compresses > 50 bps QoQ, it's a headwind. Opex improvement (toward 33-33.4%) is a lever; any miss would signal execution risk.
5 · FY27 guidance reaffirm or walk
Any reduction in AUM growth or RoE guidance post-capital raise would suggest management is losing confidence. Reaffirmation + color on capital deploy timeline is the base case and bullish signal.
The Setup
Bajaj Finance is at an inflection: revised guidance (22-23% AUM growth vs. prior 24-25%) bought it credibility on credit quality but also a lower bar for earnings surprise. The company is raising ₹17,500 Cr in capital, betting on sustained double-digit-plus lending growth and believing it can fund AUM without margin compression. Q2 FY-2027 is the prove-it quarter — the Street is constructive (70% Buy, ₹1,100 target), but execution on both growth (no more downgrades) and credit discipline (cost moderation confirmed) is the price of the premium multiple. Watch for inflection in MSME and mortgage, because if those drag Q3-Q4, the growth story shrinks. Price momentum has cooled (down 18.6% from ATH), so a beat on both AUM and credit costs could re-engage institutional buyers.