Bajaj Finserv Ltd. (BAJAJFINSV) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bajaj Finserv Limited Q1 FY '17 Earnings Conference Call hosted by JM Financial Limited. [Operator Instructions] Please note that this guidance is being recorded. I would now like to hand the conference over to Mr. Raghvesh from JM Financial Limited. Thank you, and over to you, sir.

Thank you, Manav. Good evening, everyone, and welcome to the Q1 FY '21 Earnings Conference Call of Bajaj Finserv Limited. First, I would like to thank the management of Bajaj Finserv for giving us the opportunity to host this call. As always, we'll have opening comments from the management team, post which we'll open the floor for Q&A. From the management side today, we have Mr. Srinivasan, President, Insurance and Special Projects, Bajaj Finserv Limited; Mr. Ramandeep Singh Sahni, CFO, Bajaj Finserv Limited; Mr. Tapan Singhel, MD and CEO, Bajaj General Insurance Limited; Mr. Tarun Chugh, MD and CEO, Bajaj Life Insurance Limited; Mr. Avais Karmali, CFO, Bajaj General Insurance Limited; Mr. Vipin Bansal, CFO, Bajaj Life Insurance Limited; Mr. Ashish Panchal, MD and CEO, Bajaj Finserv Direct Limited; and Mr. Mr. Deepak [indiscernible], CEO, Bajaj Finserv Health Limited. With this, I would hand over the floor Ramandeep, sir for his opening comments, and over to you, sir.

Thank you for the introduction. Good evening, everybody. We welcome you to the conference call to discuss the results of Bajaj Finserv Limited BFS for quarter 1 FY '27. As before, in this call, we will largely be concentrating on the consolidated results of BFS, the results of our insurance operations through Bajaj General and Bajaj Life are emerging companies, which include Bajaj Finserv Health Bajaj Finserv Direct; and Bajaj Asset Management Company. And lastly, we Material, the stand-alone results of Bajaj Finserv. Bajaj Finance and Bajaj Housing Finance or other material subsidiaries have already had their conference calls, and hence, we would pursue any very high-level questions on these companies. On a few hygiene points, as a word of caution, we affirm that any statements that may look -- forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result. Also to just give you on the update on the basis of accounting as we do always. As required by the regulation, Bajaj Finserv prepares its financials in compliance with Ind AS. The insurance companies, however, are currently not covered under Ind AS. And hence, they prepare, they are IndAS financials only for the purpose of consolidation. Accordingly, for Bajaj General and Bajaj Life, the stand-alone number reported are on non-IDS account standard basis, which is referred as Indian GAAP as is applicable to the insurance companies. Further on the subject, in line with the recent prescription from IDA, both our insurance companies would transition to Ind AS from first of April 2027. Let me now give you a high-level update on the consolidated financial results for the quarter. The consolidated total income for Bajaj Finserv grew at 19% to INR 427 crores. I and the consolidated profit after tax grew 18% to INR 6,297 crores. This is just to give you a flavor of the consolidated numbers. Now I will deep dive into each company's performance, starting with Bill. The GWP for Bajaj General grew at 11.3% for the quarter at INR 5,789 crores, which is in line with the industry GDPI growth of 11.1%. Excluding the Walki tender-driven crop and government health businesses, the GWP increased by about 10% as against the GDP growth of the industry of about 12%, a little lower than the industry due to tactical reduction in the motor segment on account of elevated pricing pressures. The underwriting loss for the company was at about INR 130 crores for the quarter as against INR 116 crores for the same period last year. impacted by high health loss ratios attributable to higher mix of the government health business in the net earned premium. The combined ratio for the quarter was elevated at about 14.7%. And However, if you look at the number on old accounting basis, it's at about 103.9%. The same period last year, the combined ratio on new basis was 103.6%. The elevation is largely on account of degrowth in the fire segment as we've seen for the entire injury. And also, as indicated earlier, a slight increased loss ratios on the government health business. Despite that, we believe that the reported core would be the best in the industry despite the stress in the market in terms of pricing. The profit for the quarter was at INR 478 crores against INR 660 crores for the same period last year. The reduction is mainly on account of lower capital gains booked in the quarter. as compared to the same quarter last year due to the challenging external macro environment. The annualized ROE, excluding the surplus capital, considering solvency at 200% stands at a healthy 17.3%. The AUM for the company for the quarter ended stood at about INR 35,000 crores, tagged lower than the same period last year, largely attributable to the reduction in from the buyback, which we did in previous quarter and a higher dividend payout, which we did during the quarter. Both of these combined have reduced the capital by about INR 3,515 crore for the company. This would mean that going forward, the ROE, which seemed to be addressed and we were disclosing ROEs with adjusted solvency would get normalized going forward. In summary, these operating results, including combined ratio and ROE underscore Baja General's disciplined focus on delivering balanced and profitable growth in the most challenging, difficult and highly competitive market. I will now move to Bajaj Life. Bajaj Life financial outcomes have been in line with the plan for sustainable and profitable growth, which we had articulated in [indiscernible]. The retail weighted received premium for the quarter grew at 17.5% to about INR 1,474 crores better than the industry growth of 16.2%. Retail protection contributed 12% to the overall retail business growing at 60% year-on-year. Group Protection business has also registered a very healthy growth of 95% for the quarter. And accordingly, the VNB for the quarter grew at a very healthy 87% to INR 271 crores for the quarter. The new business margin was up at 15.9% for the quarter as against 11.1% for the same quarter last year, an expansion of 4.8%. The outcomes are despite the GST impact of 2.9% on the margins. On the back of continued strong renewal premium growth of about 18%, Bajaj Life GWP grew 35% during quarter. However, there were some persistency dips observed across certain watts, which is in line with the market and the company is working towards improving these -- the profit after tax. This was the case with Bajaj General also degrew for Bajaj Life about INR 171 crores -- sorry, to about 51 was down from INR 171 crores for the same period last year. again, attributable to lower capital gains during the period, which again was attributable to the external macro environment and also the GST impact, which we have recently experienced. Bajaj Life ended the quarter with an AUM of INR 1,43,744 crores, almost 10%. Overall, the quarter for Bajaj Life has been very good and in line with our expectations. We continue to reap the benefits of strategy of Bajaj Life 2.0 of sustainable and profitable growth. Both the insurance companies continue to be financially very strong with the solvency of Maje and by the general at 254%. And hence, we are very well poised to gather any external adversity. I will now move to the lending companies, starting with Bajaj Finance, a very strong quarter as you would have seen in the results declared by these companies. The number of new loans booked grew 20% to INR 1.6 crores in the quarter. The company's diversified business model has enabled you to record a strong AUM growth of 24% at INR 5,46,944 crores. The net total income grew about 22% to INR 15,224 crores by about 27.6% to INR 6,081 crores. The OpEx to net total income was at 33.4% as against 3.1% for the same period last year, with the sequential increase attributable to the gold loan branch expansion. However, with the visibility of green shoots in operating efficiencies due to our AI implementation, the company is confident that our OpEx to NPI ratio will improve by about 25 to 40 bps on in the current financial year. The loan loss provisions was at about INR 1,993 crores for the quarter as against INR 1,969 crores for the same period last year. There was, however, a loan loss to a ratio reduction to about 1.54% this quarter as against for the same period last year. Accordingly, the GNPA and NPA are far better than what we had seen from the same period last year at 0.96% and 0.39%, respectively. -- the capital adequacy remains strong at about 20.9% as of 30th June 26. Moving to Bajaj Housing Finance. Our mortgage subsidiary. Again, overall good quarter for the company with an AUM growth of 24% driven by good momentum in disbursement amidst higher portfolio attrition. Growth was very well distributed across all business segments. Home loans AUM grew 20%, loan against property grew 22%, lease rental discounting, 41% and developer finance by 9%. The net income -- sorry, the net interest income grew by 9% to about INR 968 crores, the growth was muted largely on account of attrition of higher rate portfolios. The operating efficiencies continued with OpEx to net total income at a healthy 19.6% as against 21.2% for the same period last year. Year 2, a very healthy asset quality has been maintained with the GNP and NA of 0.29 and 0.12, respectively, for the current quarter which, again, much lower than the same numbers for the same period last year. Accordingly, the PAT grew by 23% to INR 715 crores on account of higher variable fee income and assignment income, a reduction in OpEx and lower credit cost during the quarter. Debt-adequacy ratio stood at 21.59% as of 30th June. In summary, another very strong quarter, both our lending companies, Maja Finance and Bajaj Housing Finance Limited. Now to give you an update on the emerging companies, I'll start Bajaj Finserv Health Bajaj Finserv Health executed about 6 million health care transactions during the quarter, up from about INR 5.6 million for the same period last year. The revenue for the quarter, however, registered a small degrowth on account of restructuring required in some of our partnerships on account of the recent RBI regulations around business conduct for C. again Health continued its expansion of provider network, which includes like 30,000-plus doctors, 15,000-plus hospitals and about 7,000-plus lab touch points. utilizing this network strength and its tech platform, Bajaj Health is able to offer integrated OPD, IPD and wellness experience to both retail and corporate customers. I'll now move to Bajaj markets. The total disbursements for the quarter for Bajaj markets was at about INR 2,269 crores, up from INR 2,046 crores for the immediately preceding quarter. and compared to the last year same quarter of about INR 1,209 crores. The company ended the quarter with a total unique partner count of 103. The operating revenue for the company accordingly increased to INR 107 crores with a healthy growth of 32%. As you may recall, the growth used to be muted for the full year last year. However, we are back on the growth trajectory after the planned digital customer journey enhancements, which had impacted the growth for FY '26. Further, some of the revenue structures are now trail revenue based, providing stability, predictability and nonvarity to the future revenues. I'll now move to the asset management company. Bajaj Asset Management Company continued its good run, recording assets under management of about INR 31,400 crores as on 30th June '26. With a growth of 26% as compared to the same period last year. It retained the 26th spot amongst all the mutual fund companies in India in terms of -- within the AUM, the equity mix stands at a healthy 63% and the nongroup share of the AUM constitutes almost 91% of the total AUM. Additionally, the company's SIP book saw a surge of with SA portfolios also increasing 69% year-on-year. On the other emerging businesses with respect to the alternate investments company, which has been set up during the last year, -- we have now commenced business operations with the launch of our PMS products and also expect the launch of our real estate and the AI in the coming quarter. Also happy to confirm that the Board of Bajaj Finserv has earlier during the day, approved for setting up a reinsurance company as a natural progression of furthering our insurance capabilities. We shall now prepared to seek necessary regulatory approvals to set up the company. That's from my side on the performance update. However, before we open for questions, considering the positoftime, I would request the audience to kindly keep the questions brief so that we can cover more questions during the call. With this, I invite questions from the audience.

[Operator Instructions]The first question is from the line of [indiscernible] from Nomura.

I have 2 questions. First is on the general insurance business. There was a Supreme Court ruling on motor insurance, third-party calculation for homemakers. If you can help us understand this, the impact on us, how are we going to reserve for it? And what is our measures are being taken as an industry? My second question is on Bajaj Direct platform. So a lot of the NBFCs, which have reported the first quarter results this time around, have shown big uptick in digital or fintech aggregated loans, et cetera. And just a couple of quarters back, I think there was a lot more conversation around concerns on asset quality of this book. How has the trend been on our platform? Any color that you can give around it? Those are my questions.

Tapan, do you want to take the first one?

Yes. Okay. Now when you look at the Supreme Court judgment on that you're saying, but after that, there are 2 other jets, I hope you followed that. The Panjab and Hariyana High court. They did not fully say that it's 30,000. They actually once said, completely very lower down version of it. So fundamentally, 1 has to first watch the development. So I don't think that the initial reaction 30 tonne being every 1 is being really applicable as of now, what I see. Second, you see as a company, for us, our ultimate loss that we take for TP in the initial is actually a bit conservative. -- which actually leads to release on TP as the TP book develops. We actually mean that you already have enough buffer to absorb any such if an increase does happen subsequently. So that's already built in the reserving that we do. That's how it is done. So if I actually don't have enough reserves and that gets stressed, there people have to put a company like us, where we are ultimate losses that we take. It takes into consideration kind of such kind of extrapolation. So only build into it, if you look at it because we release as the book develops. So there are 2 things to see. So I don't think that we should get very nervous about the Supreme Court ruling asset. Third, if we look at it in the books of accounts, the number of cases is very few. It is not that it is a majority of such cases of how wide into the portfolio should be there. I hope it answered your question.

Right. And in terms of any measures that the industry or you all -- all of you as an industry is taking...

There are 2 things as the industry, what we've been asking for the TP price hike, which has been there. And that we have been talking to the regulator to the Ministry of Finance lorcaseright now, the deep price happens with more in consultation with the regulator and that is there. So we've been asking for that. and a lot of good discussions keep on happening.

I understand that GIC has also filed a review petition against this judgment. So we'll have to wait and watch how this shapes out. So Ashish, over to you for the next one.

Yes, you're right that credit quality at industry level was a bit of a concern and it was not only for the last few quarters. It was sustained for 2, 3 years. And over a period of time, we have seen our partners moving the needle towards a better position of risk metrics. The whole industry has moved for better. Starting with Bajaj Finance, many of the lenders have taken appropriate users. We also see that. And while we have 50-plus letters on Bajaj markets and each with different risk return equation and hence, their thresholds are different. They are growing their business in general, and they are growing their business with Bajaj markets. So yes, we see that the position has improved. And wherever we have rail revenue deals with our partners and select deals, there, we have far more direct insight into the way the portfolio is behaving, and we are happy with the results.

Yes, yes. And just a follow-up. The for majority of your lenders that you're speaking about, most of these are just going to be personal loans, right? The customer is taking a personal loan from your platform right now in this quarter...

The platform per se has 35 different products across various asset classes. Within loans, if you ask me, we offer home loans, gold loans, personal loans, business loans, et cetera. But yes, as a product class, it is most amenable to digital lending. So it is a leader as a product -- but we see other products also growing very fast. For example, gold loans, home loans are growing fast.

We have our next question from the line of Mayur Parkeria from Wealth Managers India.

Congratulations on a good set of numbers. After multiple periods of time. Finally, the [indiscernible] has started showing the kind of actual numbers which we were expecting muting FY '26 and now continuing in the current year. And we hope that this continues. So all the efforts have started to show results. So congratulations on that. I had 2 questions basically. One is actually on general -- on Magic and maybe Tapan can add on that. As we see the current year panning out, there are a lot of natural disasters and situations led by multiple situations coming out. And this is spread across the country, Maharashtra, Gujarat, even South, now Asam. Many places, this is happening. So it may be slightly early, I understand, but we are still from the monsoon sensor, we are now almost a month, 1.5 months inside this and the disruptions taking in place. What is the kind of estimate of impact, which badge can see in the current -- in the next couple of months or in this year, given these issues which are coming, especially with reference to motor commercial and crop, which are -- which may have been more prone to impacts, which may come because of these floods or other natural disasters, which are playing out. So that was my first question. And my second question was on the other growth -- other businesses outside of insurance and lending. There is very little movement as far as the road to profitability and breakeven is concerned, on most of the subsidiaries being financial securities. So what is our path on that we were expecting while breakeven, maybe some time away, but even the improvements appear to be very shallow and the visibility of that, so if you can lay some path as to how do we see this over the next 18 months or till FY '28 and individually and how do we see that? These are the 2 questions.

Tapan, do you want to take the first one? Tapan or Avais, can you take the first one?

No. It's a very good question. I think if I look at what you have are -- but if you look at globally also insurance business, it goes through cycles. There are times when the rates are at that time, the rates are soft. So if you look at the Indian market because there are no major catastrophe losses earlier, the market is soft right now, which means the pricing is much lower what the average pricing would be in all lines of business, get crop, it fire, bit motor, be also everywhere, you see a soft market in the and that's why we look at the first quarter results of quite a few of companies the deterioration combined ratio has been up or close to 5% more upward of that. But if you look at Bajaj General, it is not much. It's just about a percentage or so. What it shows is that the company has always been picking the right in our business and has been able to shift the lines of business depending on how the market is dead. And nothing new me. They have been doing it for 25 years now, if you look at the performance, I think at all points in time, our combined ratio compared to the market is always better than at least 16% to 18% in the market, which would be there. And it's continuing even now. So the beauty is, can you select businesses where the losses are better compared to other places? And can you be right? I think that is what the technical expertise and skills is what is called. If you look at crop also, if you look at the segment that you picked up and you try and see that the impact would be lower compared to other states, if you look at motor also this time, we see our motor business has gone down compared to what it was. We have reduced our exposure there because we felt that is not there. So this is what the company keeps on doing, but what your observation is right, right? Now the market is soft. And because if these losses happen, the way data is happening, the market will harden it progress. But that is the nature of this business, it goes like that. So the obsession right, but Bajaj General, I think even in soft markets always outperformed the market. In fact, we are performing the market much more compared to what happened in a hard market. So from that perspective, as of now, is showing good results.

So are you -- are we trying to understand that the losses can be actually quite meaningful for the industry as a whole, while Bajaj may outperform is 1 thing, but that...

If the rates soften then the losses do move up. I think it's a bit natural raw said it's a cycle. Right now, rates are soft. So I think the observation that you have is right.

I think, Mayur, the bigger question is for how long can people session this. So that is something which we have to really watch for because while we have a very diversified portfolio, we may still outperform the market, but there will be others who may feel a huge amount of stress because of that. And hence, we may see an improvement over a period of time. But as we stand today, it is looking stressed to the point you made. And that.

And that will be further accelerated or accentuated because of the underwriting results will further get impacted because of the catastrophes of this current period, which we are seeing?

That's why I said the rates keep on changing. As today -- what you say is right. But let's say the market hardens tomorrow -- then again, it changes. So that is the nature of the business. globally, you look at -- you'll see cycles of softness in hard mid market, right, the Indian market is soft. So as of today, your observation is right. Tomorrow to...

That will be true for the new business. For the business, which has already been...

So here, unlike life, no, you don't have a fixed contract. Every business is like a new business, even renewals also get it is an [indiscernible] It's not a long-term contract.

No, no. I mean even for the 1 year, which has been written already, we will see the impact of that -- that will be the...

Agree. But let's say, tomorrow, the price is 120%. So then for tomorrow a business, you're right, that moves up.

Earn fields are moving up now after the last month. Okay. you get it, no. So that is how, as of today, what we survive, we have to see how the market moves.

And just to add, as a company, we have a philosophy of always putting a certain amount of money away for as part of NatCat reserves, we will continue to do so in the future.

See there, I think what Aves is trying to say is that our treaties are very robust to take care of any impact from nat cats. And you would have seen that in the past few years. ever there have been large scalabilities, also, the net impact to us has been not very material. So I think that's the other point.

Okay. Okay. And the second question, if you can...

nBy giving a summary from a Fiserv perspective, and then I'll request also chip in. See, firstly, I think from a road to profitability perspective, we are very clear and articulate in our stance, and we've been calling it out very clearly in our Investor Day. And if you refer to the tax for the respective companies, you will see that we've called out the -- and I'll just take 1 company at a time. So from a Bajaj Finserv direct perspective, I think we've been very clear that we will break even in quarter 3 or quarter 4 of this year. In fact, we had called it out that we may do it last year. but there were several changes we had to do because of the few reasons I'll talk about. One, I think we transformed that higher CRM from a frontline management perspective. Second, we had to align with the digital lending guidelines of the regulators. And thirdly, we had also Sorry, the third 1 was with respect to the changes we did on some of our structuring with partners where we moved commission on trail basis. The outcome of this was while we had some stress for the year on the revenue but from a long-term perspective, the business model was very, very clear. And hence, as the outcome of that, we had shared that in quarter 3 or 4 on a quarter's results basis, we will break in. And on a full year basis, we will break even in the coming year. And from a health company perspective, again, I think we had called out that in quarter 3 or quarter 4 of next year, which is FY '28, we should break even and full year basis, the year after that. So I think our part through profitability has been very clear, and we've been calling it out in our Investor Day very categorically. I'll also add a flavor on the asset management company there also, we've been very clear that while we have overinvested to gain scale, we've already reached INR 30,000 crores. We believe that in the next 3 years, we should at the INR 1 lakh crores AUM mark and that should be the path to profitability. I'll just request the CEOs to add if there is anything. Ashish?

Yes. Ramandeep has primarily outlined all important points. So with the trail revenue it provides nonlinearity to the bottom line. I'll give you an example. Last year same quarter, our operating revenue was INR 81 crores with 0 trail revenue. This quarter to our quarter 1 FY '27. The revenue has grown 32% from INR 81 crores INR 207 crores and INR 15 crores, I'm rounding off is the trail revenue in this. And it's growing quarter-on-quarter. So that provides the Philippe to the momentum towards breakeven. Quarter 4, yes, we are steadfastly moving towards quarter 4 breakeven at company level. And on a full year basis, FY '28 should be decently positive for us.

nI'll request Deepak also to add on the health company.

See, as far as our health platform is concerned, the differentiator really comes with technology and network build, and we continue to invest in technology and network build. The good thing is that -- our revenue is very diversified. So we are getting revenue from insurance companies, from corporates, from life insurance companies, et cetera. And therefore, the whole idea is to continue to invest in technology and network and this should start paying back next year onwards.

So from Finco perspective, the infusion will continue and help for another four quarters?

So if you look at our capital allocation plan from for Bajaj Finserv Direct, they don't need capital from a health company perspective, they'll probably need capital for next 6 quarters is what I believe. But the amount will not be as material I think INR 200 crores to INR 300 crores is at best we may need -- where we will need capital going forward is the asset management company, we will need a little, not -- again, not as much material as what we've done earlier. And the larger chunk will go into our old business, which is the newest baby on the block. And obviously, what we said earlier, we are planning to set up a reinsurance company, but I think that will take a while. And that's where I think some amount of capital will be required.

[Operator Instructions] We have our next question from the line of Sanket Guda from Avendus part.

So my first question is on Bajaj Life. We saw a significant jump in group protection business in the current quarter compared to the last year. Just wanted to understand the nature of growth. Is it largely because of revival in the MFI business? Or you got into new relationships or new products within some banks which contributed to the growth. So just -- I just wanted to understand this color of almost 100% growth year-on-year basis?

Tarun, do you want to take that?

Yes. Yes, great question always. So it's a combination of both Sonkin. I'm sure as is already showing that. Yes, there is a revival of the MFI business across the industry. We've had a significant growth there. And as you know, it's 1 of our larger books, so that helps. In terms of new partnerships in the last 15 months, we have more than 20 partners. So if you roll back a few maybe almost about a year or 18 months back, at that point in time, we started on the journey of derisking ourselves from banking on the number of partners we had because at that time, we had a pretty large set of 2, 3 partners, which contributed significant percentage that time over 50% of our business no longer is that so. And the other is in terms of the each of these sectors within the lending sector. Now that is very well spread, and we continue on that part.