Revenue/ average AUM has continued to surprise positively, driven by strong fee income and rising share of high-yielding loans.
We hosted Rajeev Jain (MD) and Sandeep Jain (CFO) of Bajaj Finance as part of Morgan Stanley’s India Virtual Financials Trip. We discuss key takeaways on the economy, COVID-19, growth outlook, product-level revenue margins, funding, cost structure, and asset quality.
Management has been seeing improvement in demand and stable asset quality across loan categories, more so in semi-urban and rural areas. Business in terms of inquiries and originations has not been affected at all to date by COVID-19. Though it might be a bit premature to assess the potential impact of COVID-19, management thinks that the granularity and geographic diversity of its loan book should impart resilience to overall numbers.
Management gave some context: if one of the top five cities was to experience a lockdown, the company should be able to withstand it without any meaningful impact on overall business. Management reiterated that its overall shares in the mortgage and credit card businesses remain low. Its overall loan share in total credit is currently ~150bp, and it has ambition to raise this to 300-400bp – its addressable market remains very large. With gains from the corporate tax rate cut in 2019 and the recently concluded capital raising to drive growth, the company has accelerated investments in growth and has increased its presence in 300 new locations. It expects the share of mortgages to increase from 30% to around 34-35% in the medium term. A 22-23% consolidated ROE is sustainable, in its view.
Revenue/ average AUM has continued to surprise positively, driven by strong fee income and rising share of high-yielding loans. Management is confident in maintaining product-level revenue margins (the consolidated level might change depending on loan mix). Overall borrowing costs have trended lower and the company has been able to raise even long-term money around 7%. Management highlighted that there might be a slight drag on margins, since it has borrowed more than required to support high growth because funds were available at an attractive cost.