HDFC Bank vs Bajaj Finance Q1 FY24

HDFC Bank reported a strong Q1 FY24 with net profit of INR 11,952 crore (+30% YoY) and net revenues of INR 32,829 crore (+26.9% YoY). NII grew 21% to INR 23,599 crore, with NIM at 4.1%. Advances grew 20% YoY (gross of IBPC) and deposits grew 19.2% YoY, with retail deposits up 21.5%. Asset quality remained stable with GNPA at 1.17% (core 1.03%) and credit cost at 70 bps. The merger with HDFC Ltd was completed on July 1, adding a large mortgage book and 4 million customers. Management guided for 17-18% loan growth and ROA in the 1.9-2.1% range. Key risk: deposit market share may face pressure given the large incremental funding requirement from the merged entity's higher credit-deposit ratio.

Guidance read

Loan growth of 17-18% for FY24: Management expects full-year loan growth in the 17-18% range, consistent with historical doubling every 4-5 years. ROA in 1.9-2.1% range: Management reiterated confidence in sustaining ROA between 1.9% and 2.1% on a merged basis. Retail deposit accretion of ~INR 1 trillion per quarter: Management indicated that the capacity built should enable retail deposit accretion of around INR 1 trillion per quarter, though Q1 was seasonally lower.

Risk read

Key risks include Deposit market share loss — QoQ deposit growth was only 1.6% (INR 30,000 crore), significantly below system growth of ~5%, raising concerns about market share loss.; Credit cost reversion to mean — Management is investing aggressively in branches, relying on benign credit costs to fund the investment. If credit costs revert to historical mean (90-110 bps), profitability could be pressured.; High credit-deposit ratio post-merger — The merged entity's credit-deposit ratio is ~109%, well above the bank's historical ~84%. Bringing it down will take 3-4 years and may constrain growth..

Promise ledger

Scorecard data is being built as historical quarters are processed.

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.

Guidance read

AUM growth of 29-31% for FY24: Management raised full-year AUM growth guidance from 27-29% to 29-31%, driven by strong Q1 momentum. Credit cost guidance of 155-165 bps for FY24: Full-year credit cost expected to be range-bound between 155-165 bps, including 6-8 bps from model redevelopment. NIM compression of 10-15 bps in Q2 and Q3: Net interest margin expected to compress by 10-15 bps each in Q2 and Q3 due to repricing of borrowings. New car financing to reach INR 200-250 crore per month by March 2024: New car financing business, launched in 80 cities, is expected to achieve monthly disbursements of INR 200-250 crore by exit of FY24.

Risk read

Key risks include Rising consumer leverage in personal loans — Management flagged increasing leverage in the system, especially in personal loans, and is taking preemptive actions to tighten underwriting.; Rural B2C portfolio stress — Rural B2C portfolio flagged as yellow due to elevated risk; business has been cut by INR 200-250 crore per month.; NIM compression from rising cost of funds — Cost of funds rose 82 bps over three quarters, with NIM compression expected to continue for two more quarters.; Potential impact of economic slowdown on asset quality — Analyst raised concern about unsecured loan growth; management acknowledged but expressed confidence in underwriting..

Promise ledger

Scorecard data is being built as historical quarters are processed.