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Bajaj Finance continues to defy concerns regarding growth (core AUM +29% YoY), sustainability of profitability (5th consecutive qtr of 5%+ RoA) and is exhibiting continued customer growth momentum (69.5m franchise, +11.6m added in FY23). 4QFY23 profits stood at Rs31.5bn (est Rs.31.4bn), 31% YoY led by largely stable NIMs (though there could be moderation ahead if rates increase further), continued to low credit costs (GNPA 0.94%, NNPA 0.38%, credit costs at 144bps). Management remains confident of adding at least 11- 12m customers and sustain growth trajectory in FY24 as well. While acknowledging the increased competitive intensity and threat of potential new entrants in some of BAF’s key products (e.g. PL), mgmt. highlighted opportunity set remains large and bureau data indicates very strong demand trends as well as a benign credit environment, though newer entrants could be tested once things take a difficult turn. BAF remains well positioned for both scenarios given its tested model, large existing customer franchise and strong credit filters. Management also clarified that newer categories (CV, MFI, Auto) just add another growth lever and will not be significantly large proportion of the overall mix. We expect Bajaj Finance delivering 27% CAGR in AUMs, 29% CAGR in earnings over FY23-25E. At current valuations, BAF is quoting at P/BV of 4.39FY25E BVPS and P/E of 19 FY25E earnings which we believe are reasonable for a quality franchise as BAF. Maintain BUY with 7925.

* Strong gowth and guality trends: AUM growth remained robust at 7% QoQ/ 25% YoY (core AUM +29% YoY), with SME business (+9%QoQ), and auto and commercial businesses leading growth this quarter. We estimate 27% AUM CAGR over FY23-25E. Further BAF exhibited strong operational performance with PPOP growing (+29% YoY, 5.5% QoQ) with higher strong AUM growth, steady opex (29% YoY, 3% QoQ) coupled with lower credit cost at 1.46% vs 1.54% QoQ. Incrementally, mgmt. believes there might some moderation in NIMs as cost of borrowings catch up though there are multiple levers to mitigate the impact on RoA (opex ratios tapering off and continued low credit costs). We build NIM moderation and lower opex growth for FY24/FY25.

* Protecting its territory despite heightened competition: In 4QFY23, BAF witnessed continued traction in customer addition with customer franchise at 69m (+20% YoY/ +5% QoQ) and cross-sell franchise at 40.56m (+24% YoY/ +5% QoQ), as of 4QFY23 and cross sell ratio seeing pickup by +2% YoY at 59%. New loans booked moderated to 7.5m (+20% YoY/ +-4% QoQ) on account of higher base last quarter. New to Bajaj (NTB) customers expanded by 3.1mn (+40% YoY/ -2% QoQ) and mgmt expects customer addition to clock 11-12mn in FY24. BAF has also focused on its digital initiatives like UPI, accelerated QR deployment which stands at 6,27,000 overall, of which 4,13,000 deployed in 4Q23 and continues to launch digital enhancements in the coming year. Mgmt. highlighted that competition is firming-up across all retail verticals, with banks and NBFCs aggressively turning towards retailisation. However they remain confident on continued growth momentum with various tech based initiatives and new products to drive growth in the medium term.

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