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* Bajaj Finance (BAF)’s 1QFY24 reported PAT jumped 32% YoY to ~INR34.4b (in line). The good operational performance was driven by: a) healthy run-rate in customer additions/new loans disbursed, b) further asset quality improvement, and c) YoY moderation in costincome ratios during the quarter.

* NII grew 27% YoY to ~INR67.2b. Other operating income rose 23% YoY and Net Total Income (NTI) jumped 27% YoY to ~INR84b.

* NIM (calc.) was stable QoQ at ~13% in 1QFY24 even as reported NII declined ~10bp QoQ. We model a NIM compression of ~25bp in FY24E due to the expected rise in cost of borrowings and difficulty in passing on interest rate hikes to customers.

* We estimate an AUM/PAT CAGR of ~29%/26% over FY23-FY25 and expect BAF to deliver an RoA/RoE of 4.6%/25% in FY25.

* Key monitorables in FY24: a) evolution of its payments landscape and adoption of its payment offerings, and b) degree to which the NIM compression can be offset with operating leverage that can result in a decline in cost ratios.

* Reiterate BUY with a TP of INR8,800 (premised on 6.5x FY25E BVPS).

AUM growth at ~32% YoY; new customer acquisitions strong

* Total customer franchise rose 21% YoY to ~73m. New loans booked grew 34% YoY to 9.9m (PY: 7.4m). The company delivered the highest ever quarterly customer acquisitions in 1QFY24 at ~3.8m and is confident of adding 12-13m new customers in FY24E.

* BAF’s reported total AUM grew 32% YoY and ~9% QoQ to INR2.7t. Sequential AUM growth was driven by Auto Finance (+14%), Urban B2B (+27%), and Commercial (excl. LAS) (+14%) in 1QFY24.

Cost ratios to moderate driven by operating leverage

* BAF’s operating expenses grew 20% YoY to INR28.5b and the opex-toNII was stable QoQ at ~34% in 1QFY24.

* The company added 95 new locations and ~12K distribution points in 1QFY24. BAF will continue to invest in digital/technology and expects to see operating leverage come through every quarter from hereon.

* Operating leverage driven by economies of scale and relatively lower investments on the technology side will drive a moderation in the opex-to-NII ratio to ~34%/33% in FY24/FY25.

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