Bajaj Housing Finance: Q2-25 Earnings Call Highlights
Strong growth, profitability & asset quality. Focused on low-risk business model. Optimistic about growth prospects, particularly in retail segment. Bullish on lease rental discounting business
bajajhousingfinance.in | NSE: BAJAJHFL
1. Key Takeaways
1.1 TLDR
BHFL delivered a strong performance in Q2 FY25, demonstrating robust growth, profitability and asset quality.
They remain focused on their low-risk business model and strategic priorities while adapting to the evolving market dynamics.
The management expressed confidence in their future growth prospects driven by new initiatives and a diversified portfolio.
1.2 Operational Highlights:
Strong Growth: BHFL crossed INR 100,000 crore in Assets Under Management (AUM) in its seventh year of operations, showcasing strong growth with a 26% Y-o-Y AUM increase.
Financial Performance:
AUM growth of 26%, driven by home loans (24% growth), developer finance (56% growth), lease rental discounting (28% growth), and loan against property (18% growth).
Profit Before Tax (PBT) growth of 23%.
Profit After Tax (PAT) growth of 21%.
Gross Non-Performing Assets (GNPA) at 0.29%.
Net Non-Performing Assets (NNPA) at 0.12%.
Operating Expenses (OPEX) to Net Interest Income (NII) improved to 20.5% from 22.1% in Q2 FY24.
Credit cost at 0.02% due to overlay release, with normalized credit cost estimated at 0.14%.
Capital adequacy at 28.98% post IPO.
Return on Assets (ROA) at 2.5%.
Return on Equity (ROE) at 13%.
Business Strategy:
Focused on low-risk business model with robust underwriting and risk management practices.
Aims for medium returns, balancing portfolio mix across segments.
Active relationship with 17 banks.
1.3 Key Themes:
Stable Portfolio Mix: Home loans constitute 57.2% of the portfolio, with approximately 10% in LAP, 19.6% in lease rental discounting, 11.7% in developer finance and 1.7% in other segments.
Robust Capital Adequacy: Capital adequacy ratio at 28.98% due to the recent IPO.
Business Model: BHFL focuses on a low-risk business model with robust underwriting and risk management practices. They strive for medium returns, balancing portfolio mix across segments.
Borrowing Mix: Diversified borrowing mix across banks (44%), money market (45%) and NHB (11%). They focus on enhancing the floating rate mix.
Sustainability: Committed to a leverage ratio threshold of 8x and maintaining a healthy capital adequacy ratio above the regulatory requirement of 15%.
Disbursement Growth: Y-o-Y disbursement growth in retail was 7%, with expectations of a pickup in the segment going forward due to the affordable and near-prime housing segments gaining traction.
Cost of Funds: Potential increase in borrowing costs due to maturing low-cost NCDs and recent MCLR increases by banks.
Credit Cost Guidance: Management expects credit costs to remain stable, within the range of 14-17 bps, excluding overlay releases.
Loan Sourcing Strategy: BHFL primarily sources loans through developer counters, distribution partners, and its own branches.
Relationship with Bajaj Finance: While both companies operate independently, BHFL receives consented customer leads from Bajaj Finance, contributing 12-15% of its home loan disbursals.
Developer Finance and LRD: BHFL is bullish on lease rental discounting due to its low risk and scalability. However, regulatory requirements limit the potential mix shift between LRD and other segments. The company plans to keep developer finance exposure below 15%.
Provisioning: BHFL maintains conservative provisioning practices, especially for LRD and developer finance, despite low historical losses in these segments.
Leverage: The company aims to maintain a sustainable leverage ratio of 8x as it utilizes the capital raised through recent equity issuances.
Future Outlook: BHFL remains optimistic about growth prospects, particularly in the retail segment, driven by their newly launched affordable and near-prime verticals. They are also bullish on the lease rental discounting business due to its low risk and scalability.
1.4 Key Quotes
On disbursement growth: "We are not seeing any major changes in the disbursements as we go forward. In fact, our view is that we should be as our SBU of a near prime and affordable is kicking in, we should see a growth picking up a bit towards in the retail segment."
On cost of funds: "In the cost of fund side, by and large, whatever you can say the implication of either the earlier low-cost NCD maturing or the pricing, the peaking out of the pass through in the cost of fund, that has happened."
On credit cost guidance: "We are by and large been stable in last four, five quarters of a 14 to 16 bps of a credit cost, net of overlay release. We don't see any reason, because stage two assets have remained at a low level, or have come down over the last one, one and a half year period. We are not looking to look at a very differentiated, or any significant change in the credit cost numbers as we go forward, net of overlay release."
On loan sourcing strategy: "So, the entire sourcing by BHFL, not by BFL. If the question is pertaining to the ETB mix of the Bajaj finance, because we get consented customer on the digital leads or on the franchise customer of BFL, that sourcing in the home loan side will be between 12% to 15% kind of a sourcing mix, which remains by and large stable."
On the potential of LRD business: "We remain bullish on lease rental discounting because in our assessment, this has remained always a very low risk business and a scale business, delivering optimum kind of returns to the company and with risk profile being very low, given the choice of the customers and since it is in a way, doubly secured, both cashflow secured, because cashflows are rescued along with the executed property or executed the project or executed building, which is there."
Bajaj Housing Finance Q2 FY25 Earnings Call FAQ
1. What were the key highlights of Bajaj Housing Finance's Q2 FY25 results?
Bajaj Housing Finance achieved two significant milestones in Q2 FY25:
Listing on the stock exchange
Surpassing INR 100,000 crores in Assets Under Management (AUM).
Other key highlights include:
Strong AUM growth of 26% year-on-year.
Profit Before Tax (PBT) growth of 23%.
Robust risk performance with Gross Non-Performing Assets (GNPA) at 0.29% and Net Non-Performing Assets (NNPA) at 0.12%.
Improved operating efficiency with Operating Expense to Net Total Income (opex to NTI) ratio decreasing to 20.5% from 22.1% in Q2 FY24.
Successful completion of the IPO process and listing on September 16th.
2. What is the breakdown of Bajaj Housing Finance's loan portfolio?
The portfolio composition remains largely stable:
Home loans: 57.2%
Loan Against Property (LAP): 9.8%
Lease Rental Discounting (LRD): 19.6%
Developer Finance: 11.7%
Other: 1.7%
3. How did disbursements perform in Q2 FY25?
Q2 FY25 disbursements were slightly lower than Q2 FY24, primarily due to a decline in LRD transactions. This was attributed to two large, marquee transactions in the LRD business during the same quarter last year.
4. What is Bajaj Housing Finance's strategy for managing its cost of funds?
Bajaj Housing Finance employs a diversified borrowing mix:
44% from banks
45% from the money market
11% from the National Housing Bank (NHB).
The company focuses on enhancing its floating rate mix and actively manages relationships with 17 banks for bank lines. The recent uptick in cost of funds is primarily due to the increase in the Marginal Cost of Funds Based Lending Rate (MCLR) by banks.
5. What is the outlook for credit costs?
The reported credit cost for Q2 FY25 was 0.02%, but this was due to an overlay release. Excluding the overlay release, the credit cost would have been 0.14%. Bajaj Housing Finance anticipates credit costs to remain stable in the range of 0.14% to 0.17% going forward.
6. Does Bajaj Finance source loans for Bajaj Housing Finance?
No, both companies have separate sourcing strategies and branches. Bajaj Housing Finance primarily sources loans directly from developers or through distribution partners. However, Bajaj Housing Finance receives consented customer leads from Bajaj Finance's digital platforms and existing customer base, which contributes to approximately 12% to 15% of its home loan disbursals.
7. What is Bajaj Housing Finance's approach to developer finance and LRD?
Developer Finance: The company focuses on a granular approach with an average ticket size of INR 46.6 crores and an average outstanding per project of INR 17 crores. This strategy helps mitigate risk.
LRD: Bajaj Housing Finance views LRD as a low-risk, scalable business offering optimal returns. The company is bullish on this segment and is open to large ticket sizes, however, regulatory norms regarding residential asset exposure limit the potential growth.
8. How does Bajaj Housing Finance approach asset quality and provisioning in its LRD and developer finance portfolios?
The company maintains a conservative approach to provisioning:
LRD: Despite a historically low-risk profile and no stage 2 or 3 assets, Bajaj Housing Finance maintains an ECL provision of 0.61% on the entire stage 1 LRD portfolio.
Developer Finance: Similar to LRD, the company carries an ECL provision of 0.62% on the stage 1 developer finance portfolio.
Bajaj Housing Finance's granular approach to developer finance and focus on high-quality LRD customers help maintain robust asset quality even during industry downturns.
Source: Link to Earning Call Transcripts
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