Bajaj Finance Q1 Results Review - Navigating Stress In B2C; Credit Costs Elevated: Motilal Oswal

Motilal Oswal Report

Bajaj Finance Ltd.’s Q1 FY25 reported profit after tax grew 14% YoY to ~Rs 39.1 billion (in line). Net interest income grew 25% YOY to ~Rs 83.6 billion (in line). Non-interest income stood at ~Rs 20.5 billion (+21% QoQ and +22% YoY) due to the resumption of EMI card sourcing and one-off recovery from written-off pool of loans of Rs 450 million.

Bajaj Finance’s Q1 FY25 NIM contracted ~23 basis points QoQ to ~9.8%. Out of this, ~13 bp was on account of rise in cost of fund and ~10bp due to change in assets under management composition.

AUM growth in Q1 was supported by mortgages, commercial (ex LAS), SME, and new product segments such as cars and loan-against-property. Higher growth in the secured product segments will likely keep yields under pressure in the near term.

The management guided that the change in the AUM mix is expected to stabilize by October 2024, which will result in stable NIMs. We estimate NIM of 9.9%/10% in FY25/FY26.

We cut our FY26 PAT estimate by ~3% to factor in higher steady-state normalized credit costs. We estimate a CAGR of ~27%/24% in AUM/PAT over FY24-FY26 and expect Bajaj Finance to deliver return on asset/return on equity of ~4.2%/22% in FY26.

Upside risks:

• Stronger AUM growth versus its guidance of ~26-28%; and

• the situation improving in the B2C business, resulting in lower-than-guided credit costs for FY25.

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