Bajaj Finserv sees sales slowing from Q3

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Bajaj FinServ & Investments announced its first quarter results for FY12. The company's Q1FY12 total gross revenues were up 5% at Rs 2900 crore versus Rs 2759 crore. The company's PAT was up 95% at Rs 129 crore versus Rs 66 crore.

Sanjiv Bajaj, managing director of the company, in an interview with CNBC-TV18's Latha Venkatesh, said that their will either be a slowdown on topline growth or crimping of margins with Reserve Bank of India's (RBI) shocking rate hike. "In the last couple of months, we have not seen a topline slowdown and have managed to pass on most of our interest cost increases," he explained.

He further stated, "We expect the topline to slowdown from the third quarter. The consumer and SME businesses have been growing at 30-50%. With a 10-15% slowdown, it will relatively have an effect."

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: RBI's rate hike was a shocker. How does it impact your own clutch of industries? Is there an inevitable crimping of margins?

A: There will either be a slowdown on topline growth or crimping of margins. In the last couple of months, we have not seen a topline slowdown still. We have managed to pass on most of our interest cost increases. After the last two rate hikes, most banks and NBFC's are passing it on.

In consumer and SME businesses, it takes a couple of quarters for the effect to come in and there is a lag effect. I expect the topline to slowdown from the third quarter. These businesses have been growing at 30-40-50%. If it slows down 10-15%, it will relatively have an effect clearly.

Our insurance business is retail. These are long term products which play the role of both, investment and protection. When the consumer has home loan prices and several other prices going up, it affects his overall investment and purchases, but I don't expect a direct effect there.

Q: You were quoted sometime back saying that you have been looking to get into your portfolio investments in infrastructure projects. Will you ponder over that now?

A: It depends on the kind of project. It is a large sized Greenfield projects. The demand has been slowing down compared to what it was in February or March. Ancillary infrastructure projects surround big projects like an airport or power plant or metro. This is our focus area.

Shorter tenure projects have been continuing still, but the large ones will see some slowdown. For example, we have started seeing lower interest coming in for these projects at this stage.

Q: Earlier this month, you decided to increase or infuse capital of Rs 750 crore into Bajaj FinServ. What are the plans exactly? Which of your subsidiaries would you want to capitalise?

A: We will raise about Rs 750 crore of equity in the NBFC Bajaj Finance that does lending. Right now, we are at a capital adequacy about 19%. We still have enough headroom for 15% which we expect to be the new norm from next year.

We would like to play it a little safer than many others. This is the reason why we are raising capital about two or three quarters earlier than required, which will help us build the lending business at least for another three years.

Q: What are your plans with your insurance company? By when would you bring either General or Life to the market?

A: The plan is to build a long-term, sustainable and profitable business. Our general insurance company has been profitable every year from the beginning. As of last year, our life insurance company has wiped out all accumulated losses.

We have doubled our net worth because of profits coming from the business. As a result, we have two shareholders enjoying that profit. We are happy doing that and are very well capitalised. In the general insurance business, after the additional hit that has come on the third party motor pool, we are well above our solvency requirement.

In the life case as against the solvency of 150%, we had 400%. This comes from profit generated by the business. From the business point of view, there is no need to go to the market to raise additional capital. Both the shareholders are long-term shareholders and neither would want to dilute a stake at this point of time.

Q: Do you mean that there is no time fixed yet or would you do it next year, if not this year?

A: There is no need. I don't see anything happening this year, next year or the year later that.

Q: What would be the big aim going forward? Is it to get that banking license?

A: It depends on what the banking license will be all about. Unless we know the guidelines, it's very difficult to say. For example, if it is extremely restrictive and there was no way we could build a long-term profitable business, we would not apply for it.

Given the state of banking in India, there is so much more that needs to be done. I expect the license conditions to help us build good sustainable business. If they help us do that, then we are in the fray.