Bajaj Finance , one of India's leading non-banking financial companies, reported a robust 22% year-on-year increase in consolidated profit after tax for the first quarter, despite facing headwinds from elevated credit costs.

Financial Highlights

• Consolidated profit after tax rose to ₹4,765.00 crore, up from ₹3,912.00 crore in the same quarter last year.
• Assets under management (AUM) grew by 25% to ₹441,450.00 crore.
• Net interest income increased by 22% to ₹10,227.00 crore.
• New loans booked during the quarter grew by 23% to 13.49 million.

Credit Quality and Provisions

Despite the strong top-line growth, Bajaj Finance faced challenges with credit quality:

• Gross Non-Performing Assets (GNPA) ratio increased to 1.03% from 0.86% a year ago.
• Net Non-Performing Assets (NNPA) ratio rose to 0.50% from 0.38% in the same period last year.
• Loan losses and provisions increased by 26% to ₹2,120.00 crore.
• The annualized credit cost to average AUM stood at 2.02%, exceeding the company's guided range of 1.85-1.95%.

Business Segment Performance

The company reported growth across various segments:

• Urban B2C loans grew by 29% year-on-year.
• MSME lending increased by 29%.
• Mortgages, including housing finance through subsidiary Bajaj Housing Finance, grew by 24%.

However, the two-wheeler and three-wheeler financing segment saw a 20% decline in AUM.

Subsidiary Performance

Bajaj Housing Finance Limited (BHFL) reported a 21% increase in profit after tax to ₹583.00 crore, with its AUM growing by 24% to ₹120,420.00 crore.

Management Commentary

Rajeev Jain, Vice Chairman and Managing Director, commented on the results: "Q1 was a balanced quarter with strong AUM growth of 25% and robust profitability. However, we remain cautious about the elevated credit costs, particularly in the MSME and two/three-wheeler segments."

Outlook and Strategic Moves

The company stated that this fiscal year will be defining for its FINAI (Financial Intelligence and Artificial Intelligence) transformation. Bajaj Finance has begun implementing AI capabilities across its operations to improve productivity and controllership.

In a significant management change, Anup Saha resigned as MD and Director effective July 21. The Board has entrusted Rajeev Jain with the responsibilities of managing the company, re-designating him as Vice Chairman and Managing Director until March 31, 2028.

Market Response

Following the results announcement, Bajaj Finance shares experienced volatility. The stock initially fell by over 6% to ₹897.65, erasing ₹38,000.00 crore in market value, as investors reacted to the higher-than-expected credit costs. Multiple brokerages, including UBS and JPMorgan, downgraded the stock citing concerns over credit quality and rich valuations.

Despite the challenges, some analysts remain optimistic about Bajaj Finance's long-term prospects. Jefferies maintained a Buy rating with a target price of ₹1,100.00, citing the company's healthy growth trajectory and strong market position.

As Bajaj Finance navigates through the current credit cycle and continues its technological transformation, investors and analysts will be closely watching its ability to manage credit costs while maintaining its growth momentum in the coming quarters.

Bajaj Finance Limited (BFL) has reported a robust performance for the first quarter, with significant growth in profits and assets under management (AUM). However, the company's shares fell 6.15% on Friday, marking the largest decline since Jan. 5, 2023, following the release of quarterly results.

Key Financial Highlights

• Consolidated profit after tax increased by 22% to ₹4,765.00 crore, compared to ₹3,912.00 crore in the same quarter of the previous year.
• Assets under management (AUM) grew by 25% to ₹441,450.00 crore, up from ₹354,192.00 crore a year earlier.
• Net interest income rose by 22% to ₹10,227.00 crore, while net total income increased by 21% to ₹12,610.00 crore.
• The company booked 13.49 million new loans during the quarter, a 23% increase from the previous year.
• Customer franchise expanded by 21% to 106.51 million.

Asset Quality and Capital Adequacy

Bajaj Finance's asset quality showed signs of deterioration:

• Gross NPA stood at 1.03%, compared to 0.86% a year ago and 0.96% in the previous quarter.
• Net NPA was 0.50%, up from 0.38% in the previous year and 0.44% in the previous quarter.
• The provisioning coverage ratio on stage 3 assets was 52%.
• Loan losses and provisions reached ₹2,120.00 crore, up 26% year-on-year.
• Capital adequacy ratio (CRAR) remained strong at 21.96%, with Tier-I capital at 21.19%.

Segment Performance

The company reported growth across various business segments:

Subsidiary Performance

Bajaj Housing Finance Limited (BHFL) also demonstrated strong growth:

• AUM increased by 24% to ₹120,420.00 crore.
• Net interest income grew by 33% to ₹887.00 crore.
• Profit after tax rose by 21% to ₹583.00 crore.

Bajaj Financial Securities Limited (BFinsec) reported a 37% increase in profit after tax to ₹41.00 crore, with assets under finance growing by 39% to ₹6,098.00 crore.

Management Changes

The company announced that Anup Saha resigned as MD and Director of BFL for personal reasons. Rajeev Jain has been re-designated as Vice Chairman and Managing Director to ensure continuity in leadership.

Market Reaction and Outlook

Despite the strong financial performance, Bajaj Finance shares experienced a significant drop due to concerns over deteriorating asset quality. The stock's decline reflects investor apprehension about the rising non-performing assets and increased loan losses and provisions.

However, Bajaj Finance continues to maintain its strong market position with a focus on diversified lending and robust risk management. The company's consistent growth in customer franchise and new loan bookings indicates a positive outlook for the coming quarters, despite the competitive landscape in the financial services sector.

As the company progresses with its digital transformation initiatives and expands its product offerings, it remains well-positioned to capitalize on the growing demand for financial services in India. The management will likely need to address concerns about asset quality in the coming quarters to regain investor confidence.