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Bajaj Finance reported a mixed Q4 FY25 with strong AUM growth of 26% to INR 416,061 crore and record loan bookings of 10.7 million, but PAT growth of 19% to INR 4,546 crore was aided by a one-time tax reversal of INR 348 crore. Credit costs remained elevated at 2.33% (1.97% adjusted for ECL model refresh), leading to a miss on earlier guidance. Management guided for FY26 AUM growth of 24-25%, credit cost of 185-195 bps, and stable NIMs, with optimism on profit growth. Key risks include delayed rate cuts impacting NIMs and elevated credit costs in unsecured portfolios. The company is focusing on credit quality and FinAI transformation to improve operating leverage.
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Guidance to track
- Aided by new business lines launched in the last 2-3 years, with a focus on credit quality first.
- Loan loss to average AUM expected to improve from FY25 levels as early vintage metrics improve.
- Driven by FinAI transformation and productivity initiatives, including fixed-term contract conversions.
- Across revenue, cost, customer engagement, underwriting, productivity, and controllership.
Risks flagged
- Credit cost guidance of 185-195 bps remains above pre-COVID levels, with urban personal loan portfolio still maturing.
- Management expects stable NIMs, but fee income growth is moderated to 13-15% and cost of fund benefits may be slower than anticipated.
- Excess capital from BHFL listing and QIP is pressuring ROE; long-term ROE guidance reduced to 19-21% from 21-23%.
- The winding-down captive portfolio (INR 10,000 crore) contributes disproportionately to credit costs; any delay in wind-down could impact asset quality.
Key quotes
- We are a credit business. We want to make sure credit first and then growth. We'll fix that. We are pretty confident of that.
- Our core objective at this stage is first to get to the credit cost corridor, which we have laid out. The early vintage is looking good.
- If things were to improve significantly, maybe the model can show ECL release number as well. That's not certain.
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