← Throughline · holding view Deep analysis ↗ Q1 FY27
BAJFINANCE Bajaj Finance Ltd · NBFC Q1 FY27 · concall
Pattern: fy27 aum growth guidance

Captive 2W wind-down exits the narrative by Q1FY27.

5 weak · 3 clean — pushback across 5 of 8 Q&A turns

Focused evidence 5 of 8

Abhijit Tibrewal · Motilal Oswalweak

The fact that it was an excellent quarter, despite that, you've not seen any change in your assessment for FY'27. This kind of a growth in the first quarter itself, don't you think this year we can grow at maybe a higher rate also drawing from the fact that what you just alluded, business and professional loans should turn from yourself acknowledge that maybe from third quarter we can start growing it. So don't you think this 22% to 24% corridor that we have given for AUM growth can maybe see some upside. And the other thing is on credit cost as well sir, starting the year, if I exclude the management overlay and the macro provisions that you have created. Credit cost of about 1.3% - 1.32% thereabouts. So there also, do you think at least the guidance that you've given out on the credit cost, you could be at the lower end of that guidance.

No, it's a fair question. It's only question I didn't cover. So, it's fair you're asking this. As they say, one solo doesn't make a summer, we'll wait for one more quarter. I think we see continued momentum. We are a growth-oriented business. We are seeing opportunities. We got to grow. All engines are firing for the firm, even MSME should be back. If you look at quarter 1, logically, but I would wait for second quarter, whether it's top line, which is AUM or PBT growth or ROA or ROE, it does seem we are much better than the guidance that we gave in March. Abhijit, I would say to all investors, wait for one more quarter, and we sustain it, then we know. We are in a way to revise.

Abhijit Tibrewal · Motilal Oswalweak

You spoke about the ROE and the PBT. So there, I'm just trying to understand this quarter, we created about INR300 crores in management overlay macro provisions. So, I mean, is the thought process that given that all cylinders are firing, credit cycle is good, utilize it for strengthening the balance sheet, improving the provision covers and keep ROE in a certain range? Or is the thought that maybe once we are behind some of these things, like you said, monsoons might be behind us in the next one month, you don't know about this West Asia war that is going on. Do you think this will be a more constant phenomenon, this macro overlay or can we see that if the quarter is actually good, credit costs are actually lower, we see them translating into profits?

I mean, I would just say quarter a time, Abhijit. Okay. I'll make one point, which is important. As I've said, that we will continue to work towards strengthening balance sheet resilience. That's the word. Second word that I use is bulletproofing balance sheet because we are truly living in a VUCA world. We do not know where is the next crisis coming from. And given our size, scale, complexity and sheer expectations from various stakeholders, I want to make sure we are one of the most resilient companies in India. So that's really what the philosophical point is. Give us one more quarter we will provide greater clarity on guidance for the year and direction of overlay creation. Nobody will have any other questions.

Avinash Singh · Emkay Globalweak

One question in the directional credit cost and yield. I mean, it has been kind of a very excellent quarter. But even broader, if you see post-COVID, the credit cost has been kind of for the industry despite the geopolitical turmoil, the Russia-Ukraine war, trade war and all this. So you had turbulence. But for Indian NBFC, the retail side of it, the credit cost structure I have been seeing a directional improvement. Do you see this kind of a structural improvement or this is again a cyclical kind of a mean reversion will happen? And if this is structural do you see that structurally the yields will see a compression because the credit cost is improving? And second, if you can help absolute amount, the share of AI-generated disbursement in the total disbursement?

So look, I can't speak about the macro. One, I'm not a macro person. I'm a micro person. I've said in the past that risk going wrong is choices we make. It's got nothing to do with macro in general, leave COVID aside and in general, risk decisions are the choices we make. We are very clear the choice we are making is to being the lowest risk company in India. So that's a choice that we have made given our size, scale, as I keep repeating, complexity and growth orientation. Risk doesn't hold the company back. It propels the company forward. I'm very clear about. Our thresholds remain quite low. We track bureau data as to what is the industry's credit cost by line of business, by line of business versus ours. Our risk thresholds are 30%, 35%, 40% of the industry in general on 30 days past due and 60 days past due. We track it since COVID. On AI contribution: in a given month, if we do INR4000 crores to INR6,000 crores of urban and rural consumer PL, that's around INR6,000-odd crores between 17% - 18% is coming from voice bot. Voice bot and data put together, that would be 20-odd percent put together. The call center business is 20%. Data conversion, everything put together, you assume it is 20%. So just for PL, whereas for gold loan, digital platform is now contributing to 25% of the business. For BL, it's 20-odd percent.

Kunal Shah · Citigroupweak

On margin — yield improvement appears to be largely because the growth was led by consumer durables, and we kept excess liquidity as well. We guided for margin moderation in FY '27, but are we more comfortable with where the margins stay because you mentioned like cost of borrowing should be range bound. And also on growth — you indicated the credit quality is much better, revised number of customers to add from 15-17 to almost 18-20, SKU pricing is going up. Would it be still towards the longer-term guidance of 22-25% or more comfortable crossing that? And on balance sheet strengthening — we are already like 2% ECL coverage on the overall AUM when our GS2 plus GS3 itself is 2-odd percent. So why still so much of balance sheet strengthening required? And on leverage at 4.9x — any plans for capital raising?

Okay, I'll go in reverse. Kunal, as I said to Abhijit, just give us one more quarter. Second quarter goes well, we'll revise our guidance on some of the metrics that we have given a management assessment on. It's unfair to give a guidance based on 1 quarter performance. Two, you're looking at the numerator of my provisions. I'm looking at the denominator, which is that we will have INR630,000 crores to INR650,000 crores of balance sheet. We want to make sure that we are really really solid. Third, capital raising, we are at 21% at this point in time. We still have to dilute BHFL. We are at 86.7%. We will go down to 75%, while we have time and we are in no hurry. First protocol most likely will be BHFL dilution. And then if our growth momentum continues to accelerate, then think about capital raise. At this point in time, I do foresee in general that our profit growth in general from a resilience standpoint should be faster than the balance sheet growth. Margins: moderation 10 - 15 basis points is what we foresee at this juncture, give us a quarter.

Bharat Shah · BCS Capital Ideasweak

At 20.5% ROE and about 4.7% ROA, with the deep AI commitment that we have made — where we have taken a lead in the lending industry — that should have deep implication over a period of time in terms of our business velocity, cost, credit quality as well as opex containment. Can we think of — or when do we think of ROE touching about 24% and ROA is going beyond 5%?

So, Bharat bhai, if I was to maximize, the answer is yes. But if I was to take a longer-term sustainable view, now taking a longer-term sustainable view, if it happens, nothing like it. That will be true symphony. But continuing to reinvest in business, I'm interested in long-term sustainability. There are two new lines of business that we are at this juncture planning to launch by January, February. We think India opportunity is real. Now can '19, '21 become 2022? Very much possible. I mean, with investing, which means we become more efficient, AI transformation starts to either accelerate top line or decelerate costs. Logically, it should do both. But given our sustainability quotient of continuing to invest in building businesses, looking for new opportunities, I would say, can yes, instead of '19, '21, can we look at 2022 as the drag reduces of excess capital, that will also have a role to play. You will see improvement in Q2 in ROE because we would have paid a dividend. So actually, that number will automatically improve. So and as I said earlier, we don't foresee raising capital. I just think you are well wisher. You should wish that we are getting to INR10 lakh crores with the same sustainability and profitability metrics.

▸ Other Q&A (3)
Shreya Shivani · Nomura

I have a question on the cost of fund. The sequential decline has been quite controlled at 5 bps or so, and 4Q was already soft. So if you can help us understand what has been our strategy on how much liquidity we are holding? What will we do for the next three quarters for most of the year? And in what direction could this cost of fund? And second question is on the Fin AI bit. If you can help us understand how will you make sure that the opex on the AI bit is under control given all the concerns around the global rising token costs? How much of open source or SLM models are you using in your FinAI bit?

On cost of funds, our liability maturity is longer than our asset maturity. So that's on a behavioralized basis. Overall cost of funds, the incremental cost of funds has gone up. Clearly, one is seeing increase of anywhere between 30, 50 or 60 basis points. Slowly, we do see directionally West Asia crisis if it doesn't settle down, it being inflationary. We are watching monsoon. Since September, it's mostly stabilized. you will see slowly creep up from here on is all, I would say. Anand Bagri confirmed: we expect it to remain range bound at these levels only and maybe with a slight upward bias. On AI token costs: we built a so-called calculator, which ensures that we know what we're spending on. Anurag explained: one, we make sure the cost of the AI is less than the cost of the human labor getting deployed — voice AI will be like 1/3 of the human cost today. Two, we use open source technologies and our own context layer or the RAG infrastructure, which necessarily reach the local AI model rather than going to large language models. Third strategy: we do not go for a full-length large language model. We use flash to mini models, which delivers better outcome at a lower cost. However as adoption increases across the firm, we are watching out for cost increase.

Piran Engineer · CLSA India

You always share your statistics around consumer leverage, like 3PL number of customers used to be 7%, 8%, 12% to 13%, where does that stand? And can you talk about the gold loan business — there's so much competition. We've built a book of INR20,000 crores, targeting INR50,000 crores or whatever. You also mentioned digital platforms is 25% of the business. So how does that really work?

One, as we track bureau data, at least we're seeing stabilization. So leverage levels overall not going up at a 2% level. Last year, the number looks to be at 1% okay? And the 30 DPD data for the businesses that we are that are prone to higher level of prone to leverage and prone to are looking better. They are flat tish actually. They are not deteriorating anymore. Year-on-year, there is improvement. Consumer debt to GDP, the number as of March 31, number is looking to be 40%. Last year it grew by 1% vs 2% for four prior years. Bureau data showing in the unsecured businesses, Y-o-Y improvement. My thresholds are 40% of the industry. On gold loan: we principally cracked it in '23 November, virtually, we converted the business into a company within a company. The strategy is very simple — one, this business is a network expansion business. We are right now adding 110 new branches a month, okay, should take us to 2,700 - 2,800 branches. 2,800 branches should mean from a capacity standpoint in our assessment to deliver a peak outcome at maturity, a INR14 crores per branch number. That's a INR37,000 crores, INR38,000 crores capacity. We think in the current year, we'll deliver between INR29,000 crores to INR31,000 crores AUM. 25% of the business comes through digital platform. That's our principal moat.

Abhishek Murarka · HSBC

So one question is on your comment that you saw a 20% Y-o-Y growth in SKUs in consumer B2B. So now one of the components, which is smartphone sales, that is not seen much growth on a Y-o-Y basis. So what are the SKUs which are compensating? And also can you comment on PL competitive intensity and also in MSME, when do you see disbursements growth picking up? You said AUM start improving in from 3Q. So are you already seeing disbursements growth pick up over there?

Manish Jain: Yes, you're right. If you look at it from an industry point of view, the counterpoint report basically talks about that the shipments of the smartphones in India have declined by almost 13% to 15% in the last quarter. But we continue to register very good growth in terms of smartphones in the range of approximately 20% to 23%. And on top of it is obviously the increase in the ATS. The ATS or the ticket size between last year to this year, if I talk about the month of July, is about close to 30% to 33% higher versus last year. It's actually a combination of both — contribution of Apple to our overall sale has increased vis-a-vis last year. And apart from that, for every manufacturer, the ATS itself has also increased from last year to this year. At an overall level, we see about between a 32% - 33% increase in the ticket size of smartphone. On air conditioners etc., the ticket size is actually almost flat. On ETB contribution — is now 63%, and it used to be in the range of close to about 60%. Rajeev added on competitive intensity: it's now for three, four years. There's nothing new. I think so it's now we're used to it across every line of business. And it's not one competitor. It's five, six competitors. What we are doing on customer centricity, digital transformation and AI will ensure that our cost of originating a new customer, cost of managing a customer, cost of cross-sell and cost of credit are contained. The color of the balance sheet in 3-odd years could change — NIM could look lower, opex would look lower, credit cost could look lower.

▸ Prepared remarks (5 blocks)
Thank you, JP Morgan team. Unfortunately, Sandeep is not here. There is a bereavement in his family. So he's not here. I was just speaking to him and I told him the first time in 19 years since I know that he was not there for AGM. When he was not even CFO, he was always there assisting the CFO, but it was unavoidable. Very good evening. I have the senior management team members, the rest of them are all here. Welcome to BFL Q1 earnings call. The investor deck has been uploaded on our website. I hope you've had a chance to go through the same. I'll quickly focus on key updates for the quarter and management assessment before Q&A. I expect to take about 15-odd minutes. Let's jump to panel number five. Excellent quarter, I would say. I mean, I've used this word after a long time, probably six - seven quarters, across all metrics actually, volume momentum, new customer addition. We added <strong>5 million</strong> new customers. AUM, we added a record INR37,000 crores of AUM in a quarter. Profit growth was strong at 28% and ROE crossed 20% despite the overhang still there on account of BHFL dilution. So, a pretty good quarter, I would say. ROA came in at 4.7% and ROE at 20.4%. Opex to NTI came in at 33.4%, marginally higher than last year. It will smoothen out as I cover over the next few panels. Panel six, seven and eight is what I'll quickly cover the key high points. AUM growth was secular and broad-based, as you can see from the composition summary later in the deck. Gold loan business sustained its strong momentum, grew by 112%. Business is now 4% of AUM. By year-end we foresee 2,700 to 2,800 branches, all goes well, maybe 3,000 branches and AUM of between INR29,000 crores and INR31,000 crores, all organic. Rural consumer finance and urban consumer finance grew by 49% and 38% due to organic volume growth on one hand, but also increase in SKU prices. So out of, let's say, 40% average growth, 20% is on account of SKU price increase and 20% is organic growth. We foresee further risk in terms of SKU prices going up is what the indication that we are principally getting from OEMs, let's see. MSME grew by 2%. As you're aware, since last July, we've been pruning business due to sort of risk actions that we've taken. It should come back into growth momentum by Q3 or so. NIMs remained steady in Q1. Deposit book came in at INR68,500 crores. It's now 15% of the balance sheet. Opex to NTI came in at 33.4%. The marginal increase principally reflects our accelerated investments in gold loan and MFI branch expansion as well as impact of new labor code. So new labor code contributed to 10 basis points, INR60 crores. Since you count decimals, I'm making the point on decimals. So, labor code, gold loan and MFI branches. Overall, we are confident of delivering 25 to 40 basis points improvement for FY '27 in opex to NTI. Fulltime employee head count stood at 73,261. We added 1,650 employees. Excluding gold loan and MFI, the net addition was 811. On credit quality now, credit performance principally remained quite strong with loan loss to average AUF in the new frame that we talked about improving to 1.54% versus same time during the same period, 1.87%. Now both numbers are comparable. As a measure of prudence, we've recognized an additional management and macroeconomic provision of INR296 crores during current quarter on account of what's happening geopolitically and the monsoon uncertainty. Of course, monsoon has covered a lot of ground, I would say, in the last 15-odd days, but I think we still have some distance to cover on monsoon before we say that the super El Nino did not impact the country. If you exclude this provision because this is a macroeconomic overlay of provision, loan loss to AUF for the current quarter would have been 1.31%. New Stage 2 and Stage 3 contribution was 1.87% from 1.94% in the previous quarter. We expect continued improvement at this juncture on this metric over the coming quarters. Vintage performance, which is principally how the portfolio churns across 3MOB, 6MOB, 9MOB continue to reflect s, significant and sustained improvement and is now running below FY '20 our pre-COVID benchmark. I keep reminding people within the company and otherwise that pre-COVID remains my benchmark. People say our size was smaller. I don't agree with that point. I've made this point many times. Across businesses, now we're looking lower than or equal to our pre-COVID benchmark. And we, in general, remain quite optimistic about the credit cost outlook for FY '27. GNPA and NNPA came in line, 0.96% and 0.39%. Provision coverage is at 60%.
We'll continue to hold there structurally. On portfolio credit quality, all businesses are green. You may see a marginal dip in business loan, but I have pencilled as green because it's just a denominator effect rather than a numerator effect, the 3MOB, 6MOB and some vintages of 9, we are beginning to see significant improvement even over FY '20. FinAI, while if some of you were there on the AGM, I've covered a lot, but if you're not there I'll just cover some points that are principally not covered. We showed five different examples in production. If it was a physical one, I would have showed it in as a live demo, but on VC it was difficult to do a live demo. We're doubling down on Fin AI transformation. We're expanding the AI unit from 230 to 400 people. We're also adding another 300 people in digital platform unit. It will principally augment our customer centricity, rapidly accelerate our technology transformation and strengthen our lowest risk framework. I mean this year the digital platform will deliver INR<strong>50,000 crore</strong>s of business. I am targeting that next year we should be delivering INR100,000 crores volume between customer centricity, AI and tech transformation and digital transformation, all these three as they come together, that's really what we are aiming to do so that from a push business, we rapidly transition towards being a full business. In Q1, on Fin AI, 27 bots are now live. But as we get deeper and deeper into this, we find more and more opportunities. So it's a continuous transformation frame. On data for AI, 45 million customer interactions were analyzed in the quarter through voice and text AI initiatives, and it resulted in 4 lakh additional offers and delivered INR517 crores of disbursements just as a result of better insight into the consumer. On product and service discovery, banners, videos, podcasts are enabling faster and more efficient marketing. You will see massive acceleration in this from November, December. massive both from a GEO, SEO and otherwise. So, in underwriting processes, we are seeing 20% plus efficiency using AI. On disbursements, AI, voice and text bots did INR2,500 crores, we will do INR11,000 crores INR12,000 in the full year this year. On service, AI bots are now handling 71% of our DIY customer service volumes. 17 agentic applications have now got deployed out of 118, and we'll rapidly accelerate as we get into the year. I'm on panel 13. I'll just cover two odd points that it gives you texture on our data intelligence, consumer, agentic AI and custom AI models. The interesting thing is custom AI model, which is on track to go live in Q2. That should help us for our B2B business generate 0.5 million customers that we could not do earlier. It will go live for the next business which will be our B2C business that will go live by October, November. So we are beginning to have confidence to use to build models using AI, which are faster, number one, and gives us insight that our traditional models did not give us. That's on AI, I would say. I would go to subsidiaries. BHFL did its second AGM yesterday. Strong quarter, I would say, highest ever quarterly AUM addition. Disbursements grew 33%. AUM grew 24%. They continue to remain under pressure on attrition, given the intense competitive activity in the business. Their Opex to NTI, which they can control, continues to improve, came in at 19.6% against 21% a year ago. And both their PAT and PBT grew by 23%. ROE improved to 12.5%. Asset quality remained pristine at 29 basis points and NNPA at 12 basis points. BFSL, strong AUM growth. Profit growth was softer at 22%, company is beginning to mature now and we have plans to continue to scale the business. To summarize, I would just say and open it up for questions, I would say we began FY'27 with reasonably strong momentum. It should lead to accelerating growth, credit costs that are structurally improving. Of course, I would flag geopolitical tensions as an area to continue to watch for. Monsoon, hopefully, should be behind us in the 30 days. If we continue to maintain strong profitability ratios, which are being reinvested to remain a growth-oriented company. That's from me for the quarter. It's a clean quarter. I shouldn't have questions, but let's do questions.
No, we expect it to remain range bound at these levels only and maybe with a slight upward bias, as you pointed out, because of some of the other issues that those are there. Otherwise, we expect it to remain range bound at these levels only possibly.
On second point sorry, on your second point, you're clear about it that tokens are a cost. So I'll let Anurag make a point. We built a so-called calculator, which ensures that we know what we're spending on, but I'll let Anurag expand on it.
CFO Sandeep Jain was absent from this call due to a family bereavement. Financial color was provided by Rajeev Jain (VC & MD), Anand Bagri (Treasury), and Anurag Chottani (COO). Key Q1FY27 financial metrics disclosed: - AUM added: record INR<strong>37,000 crore</strong>s in the quarter (broad-based, secular growth) - Profit growth: 28% YoY - ROA: 4.7% - ROE: 20.4% (despite BHFL dilution overhang) - Opex to NTI: 33.4% (marginal increase due to gold loan/MFI branch expansion + new labour code +10bps) - Loan loss to average AUF: 1.54% (vs 1.87% same period prior year); ex-macro overlay would be 1.31% - Management / macroeconomic overlay provision: INR296 crores (geopolitical + monsoon uncertainty) - GNPA: 0.96%; NNPA: 0.39%; Provision coverage: 60% - Stage 2 + Stage 3: 1.87% (down from 1.94% prior quarter) - Deposit book: INR68,500 crores (15% of balance sheet) - Fulltime employees: 73,261 (+1,650 in Q1; ex gold loan/MFI net addition: 811) - Gold loan: 112% YoY growth; 4% of AUM; 1,700 branches currently, targeting 2,700-2,800 by year-end - Rural consumer finance: +49% YoY; Urban consumer finance: +38% YoY - MSME: +2% YoY (still in pruning phase since July 2025) - New customers added: 5 million in Q1FY27 - Capital adequacy: 21%; leverage 4.9x; BHFL stake 86.7% (target to reduce to 75%)
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