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Bajaj Finance reported a mixed Q2 FY25 with AUM growth of 29% YoY and PAT up 13% to INR 4,014 crore, but elevated credit costs dampened profitability. Loan losses remained high at 2.16% of average assets, driven by higher flow rates across retail and SME portfolios, though Stage 2/3 additions moderated sequentially. Management guided FY25 credit costs to ~2.05%, above the earlier 1.75-1.85% range, but expects improvement to 2% by Q4. NIMs have stabilized, and cost of funds appears to have peaked. The company added 4 million new customers and expects to cross 100 million total customers by year-end. Festive season demand is tracking well with 21% volume growth. Key risk: credit normalization may take longer if macroeconomic conditions deteriorate or if unsecured lending stress persists.
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Guidance to track
- Net loan loss to average assets expected at 2.00-2.05% for FY25, up from earlier 1.75-1.85%.
- Full-year AUM growth guided at 27-28%, with new businesses contributing 2-3%.
- Management expects to add 15-16 million new customers in FY25, marginally higher than last year's 14 million.
- Non-Bajaj Auto two-wheeler financing will scale to 720,000 accounts in FY26, fully replacing Bajaj Auto AUM by end-FY26/FY27.
Risks flagged
- Credit costs remain above long-term averages; management is cautiously optimistic but normalization may take longer if macro conditions worsen.
- Clients with 3+ live unsecured loans show higher default propensity; supply-side slowdown may not fully mitigate risk.
- Bajaj Auto's captive financing unit is taking over two-wheeler/three-wheeler financing, impacting AUM and profitability in the near term.
- Management declined to comment on regulatory matters; ongoing investments in compliance may not fully mitigate future actions.
Key quotes
- Between managing risk and managing growth, we'll choose credit.
- We are cautiously optimistic that loan loss to average AUF has hopefully peaked, and we estimate it to go down to 2% or so by Q4.
- The NIM is now stabilized at these levels from here on.
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