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Bajaj Finance, a prominent player in the Indian financial services sector, has announced its financial results for the July-September quarter of Fiscal Year 2024-25 (Q2FY25), showcasing a remarkable surge in profitability, accompanied by a decline in asset quality. The company's standalone net profit jumped by a staggering 80% to ₹5,614 crore, marking a significant improvement over the ₹3,105.75 crore recorded in the corresponding period of the previous year. This impressive growth in profitability can be attributed to a combination of factors, including increased loan originations, robust asset under management (AUM) growth, and a well-managed cost structure.
Bajaj Finance's total revenue from operations in Q2FY25 witnessed a commendable rise to ₹14,487 crore, compared to ₹11,410 crore in the same quarter of the previous fiscal year. This growth in revenue was largely driven by an expansion in the company's AUM, which surged by 29% year-on-year to ₹3,73,924 crore as of September 30, 2024, from ₹2,90,264 crore in the previous year. The company's strategic focus on diversifying its business portfolio into new lines of operations, which now contribute 2%-3% of AUM growth, has further fueled this expansion.
Despite the impressive financial performance, the report highlights a concerning trend in the company's asset quality. Loan losses and provisions, which are a key indicator of the overall health of a lending institution's loan portfolio, remained elevated in Q2FY25. While the company managed to reduce its stage 2 assets (loans with increased risk) by ₹357 crore, stage 3 assets (loans that are considered non-performing) rose by ₹899 crore. This resulted in a net increase of ₹542 crore in stage 2 and stage 3 assets, spread across both retail and SME segments. To mitigate this risk, Bajaj Finance is actively taking steps to cut segments and prune exposures, signaling its proactive approach towards managing asset quality.
Despite the rise in loan loss provisions, the company remains cautiously optimistic about the future trajectory of loan loss to average asset under utilization (AUF). The company estimates that this ratio has peaked in Q2FY25 and is expected to decline to 2% by the end of FY25. The gross loan loss to average AUF in Q2FY25 stood at 2.16%, mirroring the Q1 level, indicating a slight improvement in asset quality.
In conclusion, Bajaj Finance's Q2FY25 results showcase a strong financial performance marked by impressive profit growth and robust AUM expansion. However, the company's deteriorating asset quality, with increasing loan loss provisions, remains a cause for concern. As Bajaj Finance continues to navigate the evolving economic landscape, its ability to manage asset quality effectively will be crucial in maintaining its strong financial performance in the long term.