Bajaj Finance : Q4 Conference Call Transcript

"Bajaj Finance Limited

Q4 FY'24 Earnings Conference Call"

April 25, 2024

MANAGEMENT: MR. RAJEEV JAIN - MANAGING DIRECTOR - BAJAJ

FINANCE LIMITED

MR. SANDEEP JAIN - CHIEF FINANCIAL OFFICER -

BAJAJ FINANCE LIMITED

MR. ANUP SAHA - DEPUTY MANAGING DIRECTOR -

BAJAJ FINANCE LIMITED

MR. ATUL JAIN - MANAGING DIRECTOR - BAJAJ

HOUSING FINANCE LIMITED

MR. MANISH JAIN - MANAGING DIRECTOR - BAJAJ

FINANCIAL SECURITIES LIMITED

MR. NILESH R. RAO - CHIEF COMPLIANCE OFFICER -

BAJAJ FINANCE LTD

MR. FAKHARI SARJAN - CHIEF RISK OFFICER - BAJAJ

FINANCE LTD

MODERATOR: MR. ANUJ SINGLA - BANK OF AMERICA SECURITIES

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	Bajaj Finance Limited
	April 25, 2024
Moderator:	Ladies and gentlemen, this call is not for media representatives or Bank of America investment
	bankers or commercial bankers, including corporate and commercial FX. All such individuals
	are instructed to disconnect now. A replay will be available for Bank of America investment
	bankers and commercial bankers, including corporate and commercial FX. The replay is not
	available to the media.
	Good day, and welcome to the Bajaj Finance Limited Q4 FY '24 Earnings Conference Call. This
	call will be recorded, and the recording will be made public by the company pursuant to its
	regulatory obligations. Certain personal information, such as your name and organization may
	be asked during the call. If you do not wish for it to be disclosed, please immediately discontinue
	this call.
	As a reminder, all participant lines will be in the listen-only mode and there will be an
	opportunity for you to ask questions after the presentation concludes. Should you need assistance
	during this conference, please signal the operator by pressing star and then zero on your
	touchtone phone.
	I now hand the conference over to Mr. Anuj Singla. Thank you, and over to you, sir.
Anuj Singla:	Thank you, Nirav. Good evening, everyone. This is Anuj Singla from Bank of America
	Securities. Thank you very much for joining us for the Bajaj Finance earnings call to discuss
	quarter four and full year FY '24 earnings. To discuss the earnings, I'm pleased to welcome Mr.
	Rajeev Jain, Managing Director, Mr. Sandeep Jain, CFO and other senior members of the
	management team. Thank you very much for giving us the opportunity to host you.
	I now invite Rajeev for his opening remarks, post which we will open the floor for Q&A. With
	that, over to you, Rajeev.
Rajeev Jain:	I have with me Sandeep Jain who's our CFO, Anup Saha our DMD, Atul Jain who's MD BHFL,
	and Manish Jain, MD BFSL and a set of my colleagues, Neelesh Sarda, who's Chief Compliance
	Officer; Fakhari, Chief Risk Officer, etcetera. I'll take you through the investor deck, which has
	been uploaded on BSE, NSE and the Investor section of our website. Let me jump right on to
	Panel four. I hope to take 20, 25-odd minutes to take you through important sections, and then
	I'll hand it over for questions and answers.
	In terms of Q4, I'm on Panel four, good quarter on AUM, customer acquisition, portfolio metrics
	and operating efficiencies. Dampener of the quarter were elevated loan losses in rural B2C and
	continued impact of regulatory restrictions. Overall, in the quarter, we delivered INR19,647
	crores of AUM growth, booked 7.9 million loans, just a tad little of 7.9 million loans and added
	3.23 million new customers in Q4.
	The app, if you're using it or I would strongly recommend you download and you start to use it,
	has gone through a major upgrade in Q4, significantly expanding our products, services and a

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Bajaj Finance Limited

April 25, 2024

host of new features on the app and web platform. Bajaj Finserv app now overall has 52.5 million customers, net users at this point in time.

In terms of financials, we ended the year with AUM of INR330,600 crores, a growth of 34%. opex to total income came in at 34%. That is really where it's been for the last three quarters now. PAT came in at INR3,825 crores, a growth of 21%. ROE as a result of capital raise came in at 20.5%. Net NPA came in at 0.37%.

I'm on Panel five, which is the full year summary. Overall, I would say, a good year across all financial and portfolio metrics for the company. Delivered AUM growth of record INR83,236 crores. We disbursed overall 36.2 million loans and added a record 14.5 million new customers in FY '24. Clearly, regulatory action on two of our products was a setback for the year. We remain committed to compliance in form and spirit as a company, and I'll cover as to how we've acted on the embargo, on the KFS just in a short while.

We're rapidly implementing our key LRS mega trends that we outlined in Q3 to investors. Account aggregator, now we have 22% of India's account aggregator on a monthly -- on a run rate basis. We have 8.1 million customers who have given us consents. ONDC, which is on track to go live by June '24. Social commerce is a platform, by July '24. Rewards is a platform, by June '24 and O2O2O to make life significantly easier for consumers by June '24. It would -- all these actions as implemented should significantly strengthen our competitive moat and also improve our cost-to-income ratios.

AUM full year I've talked about, so we had INR330,000 crores. opex to NIM on a full year basis also came in at 34% because last three quarters, that's really where the number has been. PAT has grown by healthy 26% to INR14,451 crores. ROE on a full year basis has come in at 22.1%, and net NPA ending March is at 0.37%. So that's the full year.

I'm on Panel six very quickly. Some of the points I'll just cover, which is point number four on Panel six. New loans booked were lower by approximately 0.8 million as we articulated even in our early press release on account of restrictions laid by RBI on the company on account of eCOM and Insta EMI Card.

Total cross-sell franchise crossed a milestone of 50 million customers and stood at 50.75 million customers. The company added 53 new locations and added 7,700 distribution points. We are now physically present in 4,145 locations and serve over 198,000 active distribution points as of 31st March.

In terms of liquidity, buffer -- liquidity buffer is strong at INR15,700 crores. Cost of funds continue to inch up, albeit slowly now. It grew by 10 basis points on a quarter-on-quarter basis. On a sequential quarter basis, was at 7.86% in the quarter gone by. The deposits book also grew in line with the asset growth, grew by 35% and stood at INR60,151 crores. Net deposit accretion was INR2,143 crores. Deposits on a consolidated balance sheet now contributed to 21% of overall borrowings.

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April 25, 2024

In terms of operating efficiencies, net interest income grew 28%. NIM compression in Q4 over Q3 on a sequential basis was 21 basis points, primarily contributed by AUM composition changes. As we move more and more of our assets or just re-pivot our assets slowly to rightful balance between secured and unsecured, there is some level of compression that's slowly evident in net interest income.

opex to total income came in at 34%. Company is rapidly deploying various Gen AI initiatives across operations, service and contact centres to enhance operating efficiencies. The bigger benefits will not be visible in '24-'25 or -- FY '25, but in FY '26, the exit rates of FY '25 should be much stronger as we sharpen the pencil in terms of inducting Gen AI across our processes as a company.

Employee headcount as a result of optimization of our cost -- operating cost model after 8-odd quarters went down. It stood at 53,782. The employee headcount reduced by 499 people in Q4. Attrition, on a full year basis, we came in at 14.9% versus last year of 18.7%. So continue to see improvement in overall attrition rates for the company.

Credit cost, overall loan losses and provisions were INR1,310 crores. The rural B2C business continued to trouble us even in Q4. AUM growth, and as a result, as I've always said, we are a risk-first company. Rural B2C growth actually came down from 25% on an AUM growth basis to 6% in March '24. So clearly, we still don't have a full handle on rural B2C. And as a result, the growth has been slowed down until such time we can tame risk in the business.

Having said that, I must just qualify that it's 5%, 6% of the balance sheet. Yes, 6% of the balance sheet. So it's a contained risk, and I would say it does not impact the company in any manner on an overall basis.

Loan loss to average AUF came in at 1.86% in Q4. The overall macro-overlay came in at INR300 crores during the quarter, company utilized INR127 crores towards strengthening of ECL model, which is an annual exercise and released INR163 crores towards loan losses and provisions. So it was -- the number was close to INR590 crores, which has come down to INR300 crores. GNPA and NNPA came in at 85 basis points. It's the lowest that we have seen in the history of the company and net NPA came in at 37 basis points. I think even in the industry, it's amongst the lowest GNPA ratios definitely and NNPA as well.

Risk metrics across portfolios are stable, except the rural B2C business, as I said, which continue to trouble us. We continue to remain watchful on risk actions in the rural B2C business. Otherwise, all businesses are from a management assurance standpoint, at this point in time, being marked as green.

I'm on Panel eight, profitability. Consolidated pre-provisioning profit grew 25%, PAT grew 21%, annualized ROA came in at 4.84%, ROE came in at 20.48%, capital adequacy came in at 22.52% and Tier 1 capital was 21.51%.

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Bajaj Finance Limited

April 25, 2024

Three, four additional updates. I thought I'll provide, I'm on point number 26, Panel eight, that the Board of Directors of BHFL, which is wholly owned subsidiary of BFL, at its meeting held yesterday evaluated various options for meeting the mandatory listing conditions pursuant to BHFL classification as a upper layer company, and including a potential IPO. In this regard, Board of BHFL has constituted a committee to undertake various actions and steps. That's really the update that we're going to provide at this point in time. And as and when the committee deems appropriate, we'll provide timely updates to the investors.

In the quarter gone by, company to diversify its borrowing profile, raised $725 million in external commercial borrowings, which is equivalent to INR6,016 crores, all in 3-year monies. So now 2% of the overall borrowing profile is in ECB. At the peak of it, we used to have 4% of our borrowing in ECB. So based on market conditions, we expect to take it to 4%-odd in the current year itself.

Last point is point number 29 and 30 I want to cover, on Panel nine, that the company has made required changes in response to the regulatory restrictions imposed by RBI on the company on sanction and disbursal of loans under eCOM and Insta EMI Card. The company has formally requested RBI for a review and removal of these restrictions.

To ensure compliance in form and spirit, the company in addition to the two lending products, which are under embargo, has implemented KFS now for all lending products effective 31st March. So any client who takes a loan from the company across retail and SME, effective April 1 gets to receive a comprehensive KFS, and it's in 20 vernacular languages. So that's really the update on BFL consolidated.

BHFL had a good quarter, AUM was up 32%, home loans grew 24%, loan against property 23%, lease rental discounting 57%, and developer finance 69%. Portfolio composition remains steady. BFL is fully meeting its PBC criteria of 60%. The number you see is 58% here, but based on PBC criteria, it's at 61% is what the PBC criteria -- the hurdle rate is 60%. The company is at 61%. Overall, approvals grew 19% to INR19,500 crores. Disbursements grew 26% to INR11,400 crores and the company is now present in 174 locations. Liquidity was steady at INR2,000 crores, borrowing mix remained largely steady with bank borrowings contributing to 51%.

Operating -- in terms of operating efficiencies, net interest income grew 11%. Total income grew 14%. opex to total income came in at 27%. Employee headcount stood at 2,400. The credit costs were virtually negligible, came in at INR35 crores, and BHFL still holds a macro and management overlay of over INR94 crores. GNPA and NNPA are amongst the industry best at 27 basis points and 10 basis points.

In terms of profitability, PAT grew by 26% to INR381 crores, and annualized ROA came in at 2% and ROE of 12.65% on a quarter basis, on a full year basis at 15%. BHFL raised INR2,000 crores from right -- through rights issue from BFL on 3rd of April 2024. It's sufficiently capitalized for '25, '26, for 18 months of growth or so. So that aspect has been taken care of to

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ensure that whatever the committee of the -- Board constituted committee decides in terms of its options, they are well capitalized.

Bajaj Financial Securities ended the quarter with INR26 crores profit against INR3 crores profit a year ago. Profit after tax came in at INR22 crores against a profit INR3 crores again. Added 43,000 customers. The company on a full year basis, delivered a pretax profit of INR72 crores, giving us latitude to start to invest in the business to grow the business as we move from here.

Next two panels are full year panels. I'm not going to spend time on that. What I wanted to do is to give you a management assessment for FY '25 because questions get asked, and we'll end up responding. I thought it may just be more prudent for us to systematically give you a management assessment for FY '25. Also, importantly, we've been through two low years and two high years if I take the last four years since COVID. And we're getting into a normal year, the way we see it as management. So I thought it's important we provide you a reasonable update or assessment from FY '25 standpoint.

I'm on Panel 17 for the reference of people who are listening in. As you're aware, we have a well-establishedlong-term guidance across AUM, profit, GNPA, NNPA, ROA and ROE. We expect FY '25, the way we see it at this point in time, to be a year of normalization to pre-COVID metrics. Adjusted for, of course, certain regulatory changes pertaining to NPA classification. So

• and those NPA classifications have had an impact of 12 to 14 basis points. So it's a marginal change but that's changed. When your credit costs are to the extent of 1.7% and they go up to 1.82%, that's a change, which is a 8%, 9% change. That has happened as a result of harmonization of NPA classification between banks and nonbanks, which RBI conducted between '20, '21 and '22.

When I look back over the last four years, what principally I come to conclusion is that the first two years of COVID were a low phase and the last two years of COVID have been -- last two years have been a high phase. From that perspective, we thought we'll just provide you a management assessment. This is all -- of course, is subject to stable macroeconomic and regulatory environment. This assessment, I must just qualify is for FY '25 only, and we remain committed to achieving long-term guidance metrics for the medium term as a company for which we are sufficiently capitalized, have full breadth of products, have large franchise and a very strong moat in terms of business model.

These are seven, eight areas that, in general, that you guys have -- that the investors have questions on, I thought I'll just clarify them. In terms of our management assessment of FY '25 is that we'll continue to originate 12 to 14 million customers in FY '25, we added 14.5 million customers in FY '24. In terms of AUM, we foresee a 26% to 28% balance sheet growth, principally supported by newly launched secured businesses such as loan against property, which went live in Jan '23; a new car financing, which went live in July '24 -- July '23, sorry; and tractor finance, which went live in January '24.

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Net interest margin has been moderating because of rising cost of funds and gradual shift in AUM composition towards secured assets. We expect costs to peak in our assessment at this point in time by July, August, and AUM composition re-pivot towards secured assets to stabilize by September '24. Accordingly, we foresee a 30 to 40 basis point moderation in NIM over the next two quarters from our current levels and then stabilize from there. Of course, global interest rates, local interest rates will still have a role to play both ways if -- upwards or downwards. But this is assuming that by second half -- sometime in second half of the year, we have peaked in terms of interest rates. That's really what the assumption is.

In terms of opex to NIM, we expect improvement of 20 to 40 basis points from current levels. And as we continue to focus -- we move from accelerated frame to a more consolidation stage, there could be a little bit of opportunity in opex to total income, even from these levels. In terms of credit costs, as I said, pre-COVID we used to be at 175 to 185 basis points. We expect to remain within that corridor. Last year it was 182 basis points -- for the year gone by, 182 basis points. We expect to remain within the corridor of 175 to 185 basis points.

Return on assets, our long-term guidance between 4.6% to 4.8%. We expect to remain within the long-term guidance of 4.6% to 4.8%. ROE in FY '25 may marginally go down as a result of capital that we've raised. But as you can see, ROE is holding steady, but mainly because of excess capital that we'll be sitting on that we may see some level of -- a little bit of a drag on ROE in the -- in FY '25.

GNPA and NNPA expected to remain range bound and lower than our long-term guidance, long- term guidance has been 1.2% to 1.4%. We ended the year at 85 basis points and 37 basis points. We expect to remain between 85 -- between 85 to 100 basis points of GNPA and NNPA depending on the quarter. On a full year basis, we expect this to be well within the current range.

In terms of profitability, we remain cautiously optimistic about FY '25 with profit growth to be a little more rear-ended due to moderation in NIM in the first half of FY '25. I think that -- I thought I'll just try and answer most of the questions that people have in a clear manner so that we can -- so that's really one of the last panels.

Very quickly, we can just go to asset mix, that's panel number -- the cross-sell franchise continues to grow well. So I'm mindful of time. In terms of asset mix, that's on Panel 55. On a year-on-year basis, there is a 2.2% reduction in unsecured to secured mix. Urban B2C, as you can see, has gone down by 80 basis points and rural B2C as a result of the actions that we've taken has gone down by 140 basis points, leading to 220 basis point reduction in unsecured. One is not by design. The second is by design, which is rural B2C, which I've talked about for the last two, three quarters.

From this time onwards, we also started to separate rural B2C, we used to have gold loans sitting there. We have started to separate gold loan as well. Gold loan is now 1.4% balance sheet, ending last year. It's -- we've also separated from SME lending, the car loan balance sheet. It is now at

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2.1% of the balance sheet. So greater granularity in the balance sheet continues to emerge as we grow larger and larger in size.

So 2-wheeler,3-wheeler grew year-on-year by 80 basis points in terms of mix. Urban sales finance flat, urban B2C down 80 basis points, rural sales finance flat, rural B2C down as a result of actions, gold loan moved up, SME lending 40 basis points down, commercial lending moved 30 basis point, so on and so forth. That's really where the overall asset mix has been. But I would say, marked by greater granularity as we continue to execute on our long-range strategy of to be present in all retail and MSME categories that clients would want us to be.

Just on the last point on GNPA and NNPA, which is panel -- and with that, I'll hand over for Q&A. This is panel 58, range bound, plus, minuses, not much movement here, as you can see, aggregate is where it is. Reasons for up and down are also different. If you have questions, you can raise them, we'll try and answer it as to why it's 40 basis points, 31st March '23 is at 57 because the balance sheet in the preceding -- in 31st March quarter, the urban sales finance balance sheet grew whereas urban sales finance balance sheet in quarter four went down because of the embargo. So it's a numerator-denominator point on urban sales finance and rural sales finance and so on and so forth.

That really brings me -- in terms of portfolio quality, we remain -- on Panel 62 from a management assurance standpoint, we remain pretty comfortable. As I said, everything eventually will go back to pre-COVID adjusted for regulatory actions that happened in terms of GNPA and NNPA. Otherwise, we remain well ahead or still significantly better than where we were pre-COVID. I think that brings me to the end of points that I wanted to cover, happy to take Q&A between me and the management team.

Moderator:Thank you very much. The first question is from the line of Shubhranshu Mishra from PhillipCapital. Please go ahead.

Shubhranshu Mishra: I've got two or three questions. The first one is, do we have any plans to list in the international market, either through ADR or GDR? Second is with respect to struggling businesses which is

• 1 of gold loan second is broking. When do we see a INR1,000 crores bottom line for each of the businesses? What's the timeline if you can comment to that.

	Third is that the B2C business, when we include urban plus rural, that, in my sense, should
	constitute a larger amount of the profit pool, closer to 35%, 40% basis which we cross-subsidize
	other products or other businesses. Now given the fact that we have been hitting the credit cost
	from these businesses, are we facing issues in cross-subsidizing the other businesses?
Rajeev Jain:	So ADR, GDR, it's a new point. So I had not thought about it, but it's a good input. We'll evaluate
	and update you guys based on our assessment. We do know broadly that some of the -- some of
	our -- some of the leading firms in India are listed there. So thank you for your input.

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	In terms of profit horizon, clearly, we build business with a long-term view. We expect
	microfinance -- so in terms of size, if you start to think about it and that's why we detailed gold
	loan this time, we are now from 180 branches to 650 branches, business is growing extremely
	well. You should continue to see progress there. We are very clear it is anywhere between 18 to
	24 months, by the time business becomes breakeven because we're doing business at scale and
	36 to 48 before it starts to meet hurdle rate, and anywhere between 40 to 60 before it starts to be
	a meaningful contributor to profitability. These are the three dimensions that go into our planning
	process.
	So clearly, as you can see, as we've been updating the Street that we launched a whole host of
	businesses in the last 18 months. Microfinance, tractor, new car financing, LAP. We're just
	launching commercial vehicle. So clearly, it's a -- we launched open architecture 2-wheeler 2
	two years ago. That should start to be -- that should make money in the current year. So clearly,
	two years to breakeven and businesses are built with a five-to-six-year view. But do we remain
	very focused on giving time, attention as we become larger to young businesses? The answer is
	yes. So that's the second point.
	In terms of your third point, you're principally saying that are they subsidizing. We run
	verticalized P&Ls for each one of our line of businesses internally. No business gets any subsidy.
	They all get capital at the same rate. They all -- so it's a very established, disciplined process and
	methodology, and there is no cross subsidization. Every business must meet -- any business that
	we do, it can take three years, but must meet a hurdle rate of 14% to 15% ROE for us to even
	launch the business. So -- and there is no concept of cross subsidization in the firm because we
	think that creates mediocrity in the way we run and conduct businesses.
Shubhranshu Mishra:	My question still remains unanswered, what's the commitment in the INR1,000 crores bottom
	line from gold business and broking business?
Sandeep Jain:	Sorry...
Management:	Gold and broking business.
Rajeev Jain:	What will be the?
Shubhranshu Mishra:	When do we hit INR1,000 crores profit in each of these businesses, gold and broking?
Rajeev Jain:	So I mean -- so gold loan, look, at this point in time, is going well. You're aware it's a cyclical
	business because it's a commodity, so clearly growing very rapidly at this point in time, okay?
	If the current run rate was to continue, in three years' time, it could be INR1,000 crores
	profitability. But again, as I said, we're building this with a long-term view. The model and the
	template is well set. So -- now that's one.
	Coming to BFSL. BFSL had a pretax profit pool of INR72 crores last year, should cross -- should
	grow significantly, I would say, given their current run rate at this point in time, should get to 3-

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	digit growth in the current year itself and should compound I would say, 35%, 40% for the near
	term.
	Now -- and then when I say -- then you're talking INR1,000 crores. That's a long way off for
	Manish Jain to deliver in BFSL. But again, I repeat we are building business with a long-term
	view. We are quite excited about the business. Do we challenge all our businesses to hit a
	milestone of INR1,000 crores profitability? The answer is yes. But are we patient enough to
	know that businesses take time to build? The answer is yes. So gold loan three to four years,
	longer for BFSL.
Moderator:	Thank you. The next question is from the line of Viral Shah from IIFL Securities. Please go
	ahead.
Viral Shah:	So I had two questions. One is, basically, so first of all, how is the management transition
	happening with Anup now being elevated and basically how internally it is playing out? Is it as
	per your expectations? And what are the changed roles and responsibilities now you are wearing.
	That is point number one.
	The second question that I had was also to do with now -- again, we have now numerous
	instances of RBI placing business restrictions on different entities across the shades of different
	regulated entities. So I wanted to get a sense of -- at least the common theme we have seen is
	that on issues that have been more recurrent issue between those regulated entities and RBI,
	those are the points basis which if they are left unaddressed, that is where RBI is stepping in
	with this kind of restrictions. So are there apart from this one instance which was there, any other
	pressing points that have been, say, more of a persistent issue? Any guidance on that front would
	be really helpful.
Rajeev Jain:	So management transition, it's very early days as yet. You would appreciate that. We announced
	the management transition in December. So it's very, very early, is the point I would make. So
	it's a patience play for us as a management team. And clearly, we would request you all to be
	patient as well. And the only thing I would say is that it's being done in a highly disciplined,
	rigorous and a planned manner. And we're all working towards making it a successful transition.
	So that's the first part.
	Second part, clearly, in terms of regulated matters, our preference would be to not comment on
	it. We are -- we remain committed to compliance in form and spirit. Areas that we are identifying
	even on our own, we are acting on in addition to annually points being raised by Reserve Bank.
	So -- and are we all -- given the actions on us, are we committed as a company to ensure that we
	don't create such a recurrence, at least as management, we are fully committed to. And that's
	what I can say.
Moderator:	Thank you. Next question is from the line of Kunal Shah from Citi. Please go ahead.

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