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Bajaj Finance reported a strong Q2 FY24 with PAT of ₹3,551 crore, up 28% YoY, driven by robust AUM growth of 33% to ₹290,664 crore and disciplined cost management. The company added 3.58 million new customers, taking the total franchise to nearly 77 million. Asset quality remained healthy with net NPA at 31 bps. Management highlighted proactive portfolio actions, cutting 8-14% of business in urban/rural B2C segments to mitigate rising industry leverage. NIM compression of 14 bps sequentially was noted, with another 25-30 bps expected, offset by operating leverage. New initiatives like non-Bajaj Auto two-wheelers, car financing, and microfinance pilot are gaining traction. The board approved a ₹10,000 crore capital raise. Key risk: elevated competitive intensity and regulatory scrutiny on unsecured lending could pressure growth and margins.
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Guidance to track
- Management guided for another 25-30 basis points of NIM compression over the remainder of FY24, driven by rising cost of funds and competitive pressure on yields.
- Despite NIM compression, the company expects to sustain a return on assets of 5% on an exit basis for FY24, supported by operating leverage.
- The microfinance pilot launched in 12 villages will scale to 100 locations by March 2024, with a target of 300 villages by March 2025.
- Board approved raising ₹10,000 crore, comprising ₹8,800 crore through QIP and ₹1,200 crore preferential allotment to Bajaj Finserv, to support growth.
Risks flagged
- Management flagged that customers with multiple small-ticket loans (<₹50,000) show higher imprudence and default rates, prompting portfolio cuts of 8-14%.
- Cost of funds is expected to rise as low-cost borrowings mature and are replaced at higher rates, compressing NIM by 25-30 bps for the full year.
- Analyst raised concern about RBI's focus on unsecured loan growth; management acknowledged moderation in value but noted count growth remains elevated.
- Analyst asked about impact of possible risk weight hikes; management said they have levers to manage profitability but did not quantify impact.
Key quotes
- We've cut between 8%-14% of the business in urban and rural, 14% in rural and 8% in urban, as a preventive measure, to those who have more smaller ticket loans, while they may be short-term in nature, represents imprudence.
- If there were ever butterflies in the stomach on this business, that was March 2020 till March 2022. Because we thought work from home is the new future. What would happen to this portfolio? This portfolio, even between March 2020 and March 2022, we did not see a single instance of default.
- We are very capital prudent and very... Lastly, I think, you know, since you talked capital raise, we've always raised capital and consistently demonstrated our ability to effectively deploy it effectively and deliver medium-term ROE goals.
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