Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bajaj Finance Ltd (BOM:500034, Financial) reported a 31% year-on-year growth in Assets Under Management (AUM).
- The company added 4.47 million new customers in Q1 FY25, expanding its customer base significantly.
- The Bajaj Finserv app now has nearly 57 million customers, indicating strong digital engagement.
- Liquidity profile remained robust with INR16,235 crores in liquidity buffer.
- The company saw a 26% growth in its deposit book, reaching just below INR63,000 crores.
Negative Points
- Loan losses for the quarter were elevated, with gross loan losses and provisions at INR1,790 crores.
- Net NPA increased to 38 basis points, indicating some deterioration in asset quality.
- Collection efficiency was muted across portfolios, contributing to higher stage 2 assets.
- Cost of funds increased by 8 basis points sequentially, impacting net interest margins (NIM).
- Credit cost projections for FY25 have an upward bias, indicating potential future challenges.
Q & A Highlights
Q: Can I ask one on all your NIMs and one on asset quality? On NIMs, you highlight the 10 basis points in compression this quarter coming from AUM composition. How should we think about kind of NIM progression, because your AUM composition trends appear to be clear and following that, if I kind of think about it on a longer-term view, three to five year view, should we kind of continue to expect somewhat new compression from this mix shift over time?
A: By October quarter onwards, you should see stabilization on NIMs. You will see one more quarter of movement as a result of NIM compression. But from there on, the portfolio mix should largely hold. In terms of portfolio quality, while it could be argued that it's a transient frame, we remain watchful across portfolios and have already started to proactively prune segments and cut exposures.
Q: Just again on asset quality, if you can quantify what is the impact on credit costs from the write-off policy change you had last year? And why hasn't urban B2C been as impacted as rural B2C?
A: We have seen no change in our write-off policy in the last one year. Given that you've seen some level of worsening across the board, we are proactively pruning segments and cutting exposures. So far, we have not seen worsening in urban B2C, but we remain watchful.
Q: As you indicated, we are pruning down a few of the segments. Any relation with respect to the growth guidance which we had given earlier at the 26% to 28%-odd?
A: We are pulling down our exposures where we deem appropriate at this point in time based on the incoming data. However, that doesn't change the guidance for the year. We continue to maintain the same guidance at this stage.
Q: On the fee income side, can we say that we are closer to normalization post the lifting of the restrictions?
A: We could go live on EMI card only on May 10, and eCOM went live in mid-June. There is some level of residue that should flow through as we move through the next three quarters.
Q: What is this policy on the utilization of contingent provisions? Is it formula-driven or subjective?
A: We created provisions predominantly for the COVID situation. Since we have come out from COVID in entirety, we have cleaned up the provision that we were carrying as a management overlay for the same purpose. At this point in time, there is only a small amount of provision that remains in Bajaj Housing Finance Limited.
Q: On growth, can you talk about the new products and the medium-term outlook for credit costs?
A: We have guided the full year growth to be in the region of 26% to 28%. In terms of medium-term loan losses and provision outlook, you should pencil in between 175 and 185 basis points.
Q: On rural B2C, what needs to turn for us to get better comfort to grow in this segment?
A: We have been fine-tuning in terms of risk costs. The B2B growth of rural continues to remain robust, which gives us reasonable confidence that you'll start climbing that number up. We are looking at taking the loans at the right average ticket size to ensure affordability.
Q: On the vehicle finance, car loans, and two-wheeler loans, we see some kind of trend winding up in both the vehicle finance and slowly the collection efficiency and the credit costs are increasing. Any view on particularly the vehicle finance division?
A: Car loans and two-wheeler loans are two different genres. In auto loans, as the share of new cars in the portfolio increases, the portfolio will improve. Two-wheeler loans remain a profitable business despite the current Stage two levels.
Q: On competitive intensity in the urban B2B and B2C segments, how are things in terms of both the aggression, in the pricing, and the push towards this product?
A: On the B2B business, we continue to maintain the market share. We have seen a reasonable comeback of customers wanting to take e-commerce loans through EMI cards. In personal loans, we see some moderation of unsecured loans, but our market share remains stable.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
