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Bajaj Finance reported a solid Q4 FY24 with AUM growth of 34% to INR 3,30,600 crore and PAT of INR 3,825.8 crore, up 21% YoY. Customer additions remained strong at 3.23 million, though loan bookings were impacted by RBI restrictions on eCOM and Insta EMI Card products. Rural B2C credit stress persisted, leading to slower growth in that segment. Management guided for FY25 as a normalization year, with AUM growth of 26%-28%, NIM compression of 30-40 bps over two quarters, and credit costs within 175-185 bps. OpEx-to-income is expected to improve by 20-40 bps. Key risks include delayed lifting of regulatory restrictions and elevated competitive intensity in mortgages.
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Guidance to track
- Management expects AUM to grow 26%-28% in FY25, supported by newly launched secured businesses like LAP, car finance, and tractor finance.
- Net interest margin is expected to moderate by 30-40 bps from current levels due to rising cost of funds and shift to secured assets, then stabilize.
- Operating expense to net interest income ratio is expected to improve by 20-40 bps from current levels as the company moves to consolidation.
- Loan loss to average AUM is expected to remain in the 175-185 bps range, in line with pre-COVID levels adjusted for regulatory changes.
Risks flagged
- The embargo on two products continues to impact loan bookings and AUM growth; timing of removal is uncertain.
- Rural B2C business continues to show elevated loan losses, leading to slower growth; management has slowed AUM growth to 6% but risk remains.
- Management noted 'madness' in mortgage competition, with home loans being distributed at 8.4-8.5% against borrowing costs of 8.3%, squeezing NIMs.
- Management acknowledged that ROE in FY25 may marginally decline due to the recent capital raise, as excess capital sits on the balance sheet.
Key quotes
- We expect FY 25, the way we see it at this point in time, to be a year of normalization to pre-COVID metrics.
- Rural B2C, growth actually came down from 25% on a AUM growth basis to 6% in March 2024. So clearly, we still don't have a full handle on rural B2C.
- If I may use the word in a lighter vein, the madness in terms of competitive activity in the mortgage space.
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