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Bajaj Finance Ltd

| Q2 FY '26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤10th Nov 25

Summary : Bajaj Finance reported strong AUM and customer growth in Q2 FY'26, driven by new businesses and FinAI, but faces elevated credit costs and moderated MSME growth, with an optimistic outlook for FY'27.

Management Perspective positive : Management expressed excitement about FinAI transformation and confidence in delivering sustainable growth. They stated, 'We remain very, very excited about the FinAI transformation' and 'We are pretty confident of delivering sustainable growth, managing risk proactively and leveraging technology and AI to create long-term shareholder and stakeholder value for everybody.'

Concall Report Analysis & Insights

Business Overview

  1. Assets under management (AUM) grew 24% to INR 462,261 crores in Q2 FY'26.
  2. Added 4.13 million new customers in Q2, reaching 110.64 million total.
  3. New businesses like gold, new car, CV, and tractor loans contributed 3% to AUM growth.
  4. MSME growth moderated to 18% due to a risk-first approach.
  5. Captive 2- and 3-wheeler finance is phasing out, now 1.5% of AUM.

Future Growth Prospects

  1. Full year FY'26 AUM growth guidance revised to 22-23% from 24-25%.
  2. Expect to add 16-17 million new customers in FY'26.
  3. FinAI transformation is central, with 80 high-impact areas going live by Feb '26.
  4. Anticipate significant improvements in credit costs for FY'27.
  5. Gold loan business projected to reach INR 27,000-30,000 crores by March '27 with branch expansion.

Management Insights

  1. Management is confident in delivering sustainable growth by proactively managing risk and leveraging technology.
  2. FinAI transformation is on track to make the company a future-ready AI financial services firm.
  3. The company has adopted a measured stance on its deposit program to deliver cost of funds efficiencies.
  4. Festive season performance was strong, with 7.4 million loans disbursed and 2.3 million new customers.
  5. The diversified business model allows for cutting segments with unacceptable credit risk while growing others.

Signs of Skepticism

  1. Management requested analysts to focus on other areas beyond MSME, suggesting a desire to move past the issue.
  2. The sequential increase in GNPA was attributed purely to the number of days in Q2, potentially downplaying underlying factors.
  3. While credit costs are expected to improve in FY'27, no specific guidance number was provided yet.
  4. The company's MFI book is small, making it difficult for management to comment on broader industry trends.

Risk Factors

  1. Q2 credit cost remained elevated at 2.05%, with full year expected at upper end of 1.85%-1.95%.
  2. MSME business remains under watch, with significant risk actions taken.
  3. Captive 2- and 3-wheeler business, though small in AUM, accounts for 9% of overall loan losses.
  4. GNPA and NNPA saw a sequential increase due to a higher number of days in Q2.
  5. Other operating income plateaued due to bad debt recovery numbers cleaning up.

Good To Know

  1. Cost of funds improved by 27 basis points in Q2 to 7.52%, with NIM remaining flat.
  2. Opex to NTI improved to 32.6% from 33.2% in Q2 last year.
  3. Rural B2C and MFI portfolio credit quality assessment improved from 'yellow' to 'green'.
  4. Manish Jain was elevated to the fourth Deputy CEO, overseeing loans against security, commercial lending, and deposits.
  5. BHFL reported 24% AUM growth and 18% PAT growth, while BFSL saw 40% AUM growth and 27% profit increase.

Key Drivers

  1. FinAI transformation to drive efficiency.
  2. New customer additions fueling growth.
  3. Diversified business model supports stability.
  4. Strong festive season indicates demand.

Key Analyst Discussions

Competitive Environment

  1. Bajaj Finance aims to build a strong edge through technology, process automation, and FinAI.
  2. The company is a dominant player in electronics and consumption loans, driving market expansion.
  3. Digital infrastructure, with 75 million app customers, creates a significant competitive moat.
  4. Gold loan business aims for profitability similar to leading competitors, not just scale.

Market Trends & Consumer Behavior

  1. Festive season consumption patterns look promising and momentum is sustaining across product segments.
  2. Rural B2C business is being rebuilt and grown faster due to improved vintage performance.
  3. MFI lending book is small, making it difficult to comment on broader industry pain points.
  4. MSME stress is an across-the-board issue, not regional, and the company is mitigating it.

Financial Highlights

  1. Credit costs are expected to improve significantly in FY'27, driven by captive 2-wheeler phase-out and MSME actions.
  2. Cost of funds guidance for FY'26 is 7.5%-7.55%, with benefits passed to customers to maintain NIM.
  3. Other operating income plateaued due to the cleaning up of bad debt recovery numbers.
  4. The company has taken significant provisions in MSME business this year.

Product Composition

  1. New lines of business like gold loans and new car financing are lower risk and growing.
  2. MSME business growth was cut by 25% in unsecured volumes, now expected 10-12% for the fiscal.
  3. Tractor financing book is small, with a target mix of 75% new and 25% used vehicles.
  4. Captive 2-wheeler financing, contributing 9% of loan losses, is being phased out.

Strategic Considerations

  1. FinAI transformation is expected to reflect in cost and productivity benefits over 12-18 months.
  2. Management spends 12-15% of time on FinAI, with 80 high-impact areas going live by Feb '26.
  3. The company uses AI for voice bots, conversational bots, quality checks, and content generation.
  4. Risk management involves cutting businesses with unacceptable credit risk and growing solid performers.