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Bajaj Finance delivered an excellent Q1 FY24 with PAT of INR 3,437 crore (up 32% YoY) and AUM growth of 32% to INR 2.7 lakh crore, the highest ever quarterly addition of INR 22,718 crore. The company booked 9.94 million loans and added 3.84 million new customers, with customer franchise reaching 73 million. Asset quality remained pristine with GNPA at 87 bps and NNPA at 31 bps. Management raised long-term ROE guidance to 21-23% from 19-21%. Key driver was strong demand across segments, especially B2B and consumer durables. Guidance: AUM growth of 29-31% for FY24, credit cost of 155-165 bps, and NIM compression of 10-15 bps in Q2 and Q3. Risk: rising consumer leverage in the system, particularly in personal loans, which management is proactively monitoring and tightening filters on rural B2C.
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Guidance to track
- Management raised full-year AUM growth guidance from 27-29% to 29-31%, driven by strong Q1 momentum.
- Full-year credit cost expected to be range-bound between 155-165 bps, including 6-8 bps from model redevelopment.
- Net interest margin expected to compress by 10-15 bps each in Q2 and Q3 due to repricing of borrowings.
- New car financing business, launched in 80 cities, is expected to achieve monthly disbursements of INR 200-250 crore by exit of FY24.
Risks flagged
- Management flagged increasing leverage in the system, especially in personal loans, and is taking preemptive actions to tighten underwriting.
- Rural B2C portfolio flagged as yellow due to elevated risk; business has been cut by INR 200-250 crore per month.
- Cost of funds rose 82 bps over three quarters, with NIM compression expected to continue for two more quarters.
- Analyst raised concern about unsecured loan growth; management acknowledged but expressed confidence in underwriting.
Key quotes
- We think a 21%-23% ROE, given 19, 20, 23, 24, and mind you, last year, we had no one-timers, either as income or as great cost and given the Q1. We are penciling in that the long-term guidance, we are upping from 19%, 21% to 21%, 23%.
- The amount of personal loan growth is troubling us. In fact, one of the objectives of us penciling in rural B2C, because we're seeing growth even there in terms of level of leverage.
- We have strengthened the provisioning coverage ratio across businesses. That is costing us about INR 50 odd crores in the quarter one.
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