Bajaj Finance reported a robust financial performance for the first quarter of FY27, with net profit rising 28 percent year-on-year to Rs 6,080 crore. The earnings exceeded both Nomura's and broader market estimates, primarily due to lower-than-expected credit costs and continued improvement in asset quality.

According to Nomura, the company's operating profit was largely in line with expectations, while credit costs came in around 9 percent below both its estimates and the Bloomberg consensus. During the quarter, Bajaj Finance created a macroeconomic provision of Rs 296 crore. Excluding this one-time provision, the credit cost stood at 1.3 percent, marking the company's lowest level since the COVID-19 pandemic.

Asset quality also strengthened during the quarter. Gross Stage 2 assets declined to 0.91 percent, the lowest level since the pandemic, while Gross Stage 3 assets improved to 0.96 percent after remaining elevated over the previous five quarters. The company maintained a provision coverage ratio of around 60 percent on Stage 3 assets, with management indicating its intention to sustain this level going forward.

Despite the improving operating environment, the management has chosen to retain its existing business outlook. The company cited uncertainties surrounding global developments and the progress of the monsoon season, stating that it would assess trends for another quarter before considering any revision to its guidance.

On the funding side, Bajaj Finance reported one of the smallest increases in funding costs among major non-banking financial companies tracked by Nomura. While the incremental cost of funds has increased by 30 to 60 basis points, the company expects its overall funding cost to remain broadly stable with a marginal upward bias during the remainder of FY27.

Assets under management (AUM) increased 24 percent year-on-year, supported by healthy growth across multiple lending segments. Strong expansion in gold loans, microfinance, commercial vehicle financing and tractor loans offset relatively softer demand in urban personal loans. Management also expects MSME lending growth to improve from the second half of FY27.

Following the quarterly performance, Nomura reaffirmed its Buy rating on Bajaj Finance with an unchanged target price of Rs 1,140, citing strong execution, resilient asset quality and healthy long-term growth prospects.