Bajaj Finserv Ltd

NSE:BAJAJFINSV

Earnings Call Analysis

Bajaj Finserv Reports Strong Revenue Growth Despite Challenges

In Q2 FY '25, Bajaj Finserv achieved a remarkable 30% consolidated revenue growth year-on-year, totaling INR 33,703 crores. This growth reflects a healthy 52% year-over-year increase for the half-year period. Profit after tax rose by 8% for Q2, driven by robust performances across subsidiaries, despite a 20% drop in BAGIC's gross written premiums due to a postponed government health business. The life insurance segment grew by 54% year-on-year, while Bajaj Housing Finance saw a 26% increase in AUM. The company maintains a strong solvency margin of 312%, ensuring financial stability amidst challenges.

Robust Revenue Growth

Bajaj Finserv Limited showcased a strong performance in its Q2 FY '25 results. The company reported consolidated revenue of INR 33,703 crores, reflecting a remarkable growth of 30% year-over-year (Y-o-Y) for the quarter and an impressive 52% growth for the first half. This growth was driven by robust performance across various subsidiaries, highlighting the overall resilience of the business despite challenges in specific segments.

Profitability Metrics

Bajaj Finserv achieved a profit after tax (PAT) increase of 8% Y-o-Y for Q2, amounting to INR 494 crores. For the first half, PAT rose by 9%. Additionally, the company maintains a strong balance sheet with surplus funds of INR 3,546 crores, which is 28% higher than the previous year. This solid financial foundation underlines Bajaj Finserv's capacity to sustain growth and manage potential market fluctuations.

Insurance Operations Insights

The company's insurance segment, including Bajaj Allianz General Insurance Company (BAGIC) and Bajaj Allianz Life Insurance Company (BALIC), exhibited mixed outcomes. BAGIC's Gross Written Premium (GWP) declined by 20%, primarily due to the deferral of a significant government health business to Q3. However, core business performance was healthy, with an 11% increase in GWP, significantly outperforming the industry growth rate of just 4%. BALIC managed to increase its market share to 9% in the private sector and reported a 3% rise in new business value (NBV), indicating its competitive positioning in a challenging environment.

Challenges and Market Dynamics

Despite the strong overall results, the company faces challenges, particularly in the insurance segment due to ongoing margin pressures. The competition in the insurance space is intense, with increasing profit-sharing pressures and an industry-wide decline in margins. The new business margin (NBM) for BALIC was reported at around 9.2%. However, there is an expectation for momentum to shift positively in the second half of the fiscal year as the product mix stabilizes and operational efficiencies improve.

Health Sector Expansion

Bajaj Finserv's health segment is undergoing integration and expansion post the acquisition of Vidal Health. The segment generated a consolidated revenue of INR 233 crores, indicating growth potential in this area. The management sees opportunities to enhance operational metrics and tailor offerings to capture more market share as the health tech landscape continues to evolve.

Outlook and Financial Guidance

Bajaj Finserv's management has remaining positive about the trajectory of business growth. For the second half of FY '25, expectations are set for an improving profit margin as market conditions and product offerings align. The company aims to achieve an enhanced NBM as it ramps up sales in more profitable segments, leveraging its established customer base and strong distribution channels. With management asserting their commitment to navigating market dynamics effectively, the outlook for Bajaj Finserv remains cautiously optimistic.

Summary of Key Financial Metrics

To summarize the key financial metrics: consolidated revenue of INR 33,703 crores for Q2 (up 30% Y-o-Y), a PAT of INR 494 crores for Q2 (up 8% Y-o-Y), and a strong solvency margin in the insurance operations of 312%. This financial strength, combined with a comprehensive approach to managing operational challenges, positions Bajaj Finserv well for future growth.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Bajaj Finserv Limited Q2 FY '25 Earnings Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. [indiscernible] from JM Financial. Thank you, and over to you, sir.

[Unknown Analyst]

Thank you. Good morning, everyone, and welcome to the 2Q FY '25 Earnings Conference Call for Bajaj Finserv Limited.

First of all, I would like to thank the management of Bajaj Finserv for giving us this opportunity to host the 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. Ashish Panchal; CFO, Bajaj Finserv; Mr. Tapan Singhel, CEO, Bajaj Allianz General Insurance Co; Mr. Tarun Chugh, CEO of Bajaj Allianz Life Insurance; Mr. Ramandeep Singh Sahni, CFO of the General Insurance Business; Mr. Vipin Bansal, CFO of the Life Insurance business; Mr. Ashish Panchal, CEO of Bajaj Finserv Direct; and Mr. Devang Mody, CEO of Bajaj Finserv Health.

With that, I would hand over the floor to Mr. Sreenivasan, for your opening comments. Over to you, sir. Thank you.

[S. Sreenivasan, executive]

Thank you very much. Good morning, everybody. I welcome, everyone, to the conference call to discuss the results of Bajaj Finserv Limited for Q2 FY '25. As before, in this call, we will largely be concentrating on the consolidated results as well as the results of our insurance operations for BAGIC and BALIC and where material, the stand-alone results of the company, BFS, which is another major subsidiary of ours, has already had its conference call or if there are any high-level questions on BFL, we're glad to take that as well.

I will also take you through some of the key developments from some of our other subsidiaries, including our AMC, our marketplace business as well as our health care business.

Before I go into the call, with respect to the new [indiscernible] published in the mainstream idea and the disclosure that we made regarding the intimation by Allianz to us of their decision to [indiscernible] the joint venture, we have already put out a press release. There is no significant additional information that I can provide you at this stage. We will -- as and when things evolve and as required under the applicable law, we could make disclosures as and when it is ready. Therefore, I would request you in this call to focus on the operations of our companies, and we will be glad to provide any clarification that you need in this aspects.

The only thing I would say that in the last several years, we have built solid businesses in Life and General Rental Insurance business, and we have always had certainly focus our equity stake. And this will continue to be -- Bajaj will continue to be the dominant shareholder in this business [indiscernible].

Any statements that may look like forward-looking statements are just estimates and do not constitute an assurance or indication of any future performance result.

As required the regulation, as you are aware, BFS prepared its financials in compliance with Indian Accounting Standards, Ind As. The insurance companies are not yet covered under Ind AS. They have prepared Ind AS financials only for the purpose of consolidation.

Accordingly, for BAGIC and BALIC, the stand-alone numbers reported are based on non-Ind AS accounting standards or Indian GAAP, as we call it, as applicable to [indiscernible] companies.

Our results, the press release accompanying the results and our investor deck has been uploaded on our website within half an hour of our results. I would like to draw your attention to the newly revamped investor deck, [indiscernible] executive summary and significantly more disclosures. We do hope you appreciate this and look forward to your feedback for further improvement in time.

Coming to the -- I will now start with the results. Our total consol [indiscernible] generally a very good quarter for growth across all our businesses. Consolidated revenue grew at [ 30% ] for the quarter. And for the half year, it is 52% Y-o-Y. We ended the quarter with INR 33,703 crores of total revenue. The profit after tax was up 8% Y-o-Y for Q2 and 9% Y-o-Y for H1. And we have a surplus funds now in the [indiscernible], INR 3,546 crores, which is 28% higher than last year.

Coming to the individual businesses.

BAGIC's gross written premium for the quarter. The headline is down 20%, but it is predominantly because of a large government health business, which got shifted to Q3. So we hope this will got stabilized in Q3. But nevertheless, the underlying growth is significantly above market.

BAGIC had a profit after tax of INR 494 crores, which is 6% higher than a combined ratio of [indiscernible].

The life insurance continues to deliver market-leading growth while in the individual [indiscernible] business at 54% Y-o-Y. The NBV, the new business value was higher by 3% Y-o-Y, then NBM is down by 3.8%, as you may have seen from disposed of other companies, they'll be on ramp-up across the industry come to the regions soon.

Gross written premium was higher by 23% and our AUM at INR 123,178 crores with 25% higher as well.

Coming to the consolidated results of BFL, the strong growth will be 9% on AUM. Total income up 24%, 13% growth in profit after tax and the gross NPA, 1.06% and net NPA 0.46%, continues to be among the best in the industry. And with ROA of 4.48%, which translates to an ROE of 19.08% annualized.

Our newly listed subsidiary, Bajaj Housing Finance that the 26% growth in AUM, 18% growth in net total income, the profit after tax of INR 546 crores was higher by 21% and the credit performance continues to be exceptional at just 12 basis points of net NPA and 29 basis points of gross NPA. the ROA of 2.5% given that it is low risk, low margin business is quite satisfactory, advanced rate on an ROE of 13.03%.

Coming to some of our smaller businesses, the stock broking business, which is under Bajaj Finance had a very good quarter again, 78% growth in revenue from operations at INR 121 crores. The profit after tax is up by 185% at INR 37 crores. The AUM at INR 5,430 crores were largely the margin trade finance AUM and an ROE of 12.03%. So our [indiscernible] start-up company, it will be relevel [indiscernible] level of profitability we are comfortable with, but we'll see good run rate of growth in the coming years.

The marketplace and tech services business again 30% growth in the revenue from operations. The profit after tax is down to just INR 6 crores for the quarter as against INR 18 crores. And we help that and EPS services again as revenue from operations at INR 233 crores. They are comparing the previous year because this year we acquired with [indiscernible]. The year-on-year goes very high. but it's not comparable [indiscernible].

The profit after tax was negative INR 32 crores within our plan, of course. And the cumulative capital, we have increased in the business of INR 1,086 crores.

The asset management business again at an AUM growth at about INR 17,000 crores, and as I speak, it is about INR 18,000 crores. It had a revenue from operations of INR 10 crores. And as you know, in the asset management business, the revenue comes over time as the asset is gradually over time.

Coming to the highlights for each of the individual businesses, BAGIC muted industry growth across various segments. Given that, excluding crop and government health, which are more volatile, and particularly with the crop insurance that's been subject to significant price compression as well with a new [indiscernible] and [ 61 ] for these teams. That is gross written premium actually increased 11% in the core business, which is higher than the industry growth of just 4%.

Combined ratio continues to be good, but it was affected by nat cat claims. So it was higher than last year from 95.3% from FY '24. Excluding that combined ratio are in below at a 99.7%.

On the [indiscernible], as I told you, there was an underwriting loss of INR 48 crores for the underwriting profit of INR 37 crores, and we hope that second half we do get an opportunity to recover that.

The solvency margin is very strong at 312% as against the regulatory norm of 150%.

BALIC, market beating growth. Market share has increased to almost 9% for private sector, 8.9%.

In Q2, BALIC ranked sixth among private players and third on retail NOPs. I think this is a very significant move over the last couple of years. The BALIC has been acquiring new customers and the number of policies in new business value is now 3% [indiscernible] for the quarter.

The new business value grew by 3%, notwithstanding the margin pressure. And fortunately, the margins are down across the industry, significant increase in the sales of units, which are lower-margin business for the industry as a whole. And we have seen from some of the other companies that public there as well but it's an industry phenomenon. But given that the growth in NBV with these headwinds is actually quite reasonable.

Coming to Bajaj Finserv Health, the integration work at commenced post-acquisition of Vidal Health and the consolidated revenue of INR 233 crores. [indiscernible] as your health tech start-up, the revenue is very encouraging and continue to integrate without the [indiscernible] of run rate for growth for Bajaj Finserv Health.

Bajaj Finserv Direct, clearly, the INR 6 crore negative profit in the quarter, we do see very good visibility that the next couple of quarters, we might actually breakeven. On a cash basis, we may make it a bit earlier as well. And a lot of this narrow to disclose as I told you. For AMC has already mentioned.

Bajaj Finance, capital adequacy remained strong, 21.69%. Tier 1 capital was 20.9%.

Housing finance, they already covered the IPO was one of the most successful in the history of the Indian public sector, and we are now sitting insignificant capital adequacy, which will help them maybe [indiscernible] the growth in the housing market quite well in the quarters to come.

With that, I hand over the mic to you for Q&A, and we look forward to [indiscernible] on our businesses.

[Operator]

[Operator Instructions] The first question is from the line of Prakash Kapadia from Spark PMS.

[Prakash Kapadia, analyst]

Yes. A couple of questions from my end. On the health side, typically, when we are looking to scale what are the combined ratios on the retail and group side or what are thresholds for scaling that business, what is your experience been on the government side of the health business? Because if I try and look at our GDP growth, it's in the first 6 months, it's degrown partly due to health TP and crop business not growing. So what will bring back GDPI growth in the medium term for us? Those are two questions.

[S. Sreenivasan, executive]

Before I hand it over to Tapan, I think if you look at Bajaj [indiscernible] over the last 20 years, when we started business, we will said don't do motor business. Everybody was very interested in the very attractive corporate business, which was under the tariff, very cushy tariffs in hindsight. But from the first year, we started making profit.

Similarly, over time, we have internal 2 businesses. We are in crop business. We are going to rural markets. We have Government Health, and we have a very clear focus on underwriting profit through our combined ratio and risk management. This business is not just about GDPI growth. It is a combination of growth and how you maintain profitability, and risk is more critical to this business.

Now I hand over to Tapan to take on the question on the crop farmland the retail [indiscernible].

[Prakash Kapadia, analyst]

So if you look at it our growth, if you see the core growth is much over the market. And we have done this part of seeing what has degrown. But if you also remove the bulky business, growth is very comfortably over the market. I think someone, correct me if it's wrong, the market grew in the second quarter at about what?

[S. Sreenivasan, executive]

4% and degrew 11%.

[Tapan Singhel, executive]

11%. Yes. so our growth is about what?

[S. Sreenivasan, executive]

3x, more than 3x the market.

[Tapan Singhel, executive]

3x the market. So I think it is wrong to see from a perspective that degrowth is happening. Again, if you look at it, the governmental business has shifted to October booking, which was last year booked in this quarter. If you add that up, our growth, again, is very comfortable for the quarter. It is at least like Sreeni mentioned about 250% 300% market growth, how much would be there. So I don't think that there's any degrowth happening in there.

What you're seeing at a micro level degrowth is what we are doing willingly. If you look at the TP degrowth that you see commercial lines of business [indiscernible]. So we have established there. We're going up because, again, retail command ratio for the industry is a stress. So we are not really getting very aggressive there on that basis.

Crop, if you look at, there has been about a 50%, 30% fall in prices in crop for the marker. So obviously, we have more reduced exposure. Now if you see, there's a strategy for 23 years. It has been nothing new or surprise and we've been consistent with is where we see stress in the market as we reduce exposure. Where we see opportunity, we'll increase the exposure. That is why if you look at our combined ratio, which has always been among the best in the industry.

And if you look at our ROE in the business return equity, you see on excess capital or solvency higher at 300 plus. If you need the excess capital, and let's say, take 20, you take 150 our ROE at 30%. At 200% of solvency which is still better than most -- our ROEs clearly over 20% consistently. So you have a business that is delivering an ROE, which is clearly on the higher side of 20% consistently without the excess capital.

It's a business which has been able to be agile, to be able to manage in terms of opportunities. And still the growth is much over the market. So that is what the suite currency margin. I hope I answer your question.

[Prakash Kapadia, analyst]

We would be comfortable with the Government Health side of the business what has been our experience? Obviously, you said it is getting deferred.

[Tapan Singhel, executive]

As I said, I never give you and call micro numbers. But broadly, as I said, if you look at the combined ratios as a company, it will still be among the lowest in the industry and the ROE over 20%, if I remove shareholders. So as a company, we do a business that we really feel has strategic importance for a long-term growth of the company.

[Prakash Kapadia, analyst]

I'm asking on the...

[S. Sreenivasan, executive]

Just to add on Tapan said, I think for the risk of repetition on previous calls, the P&C business is a business of how do you manage your risk across P&C. And within that, in India, particularly, we have different types of businesses that are retails business, that are government subsidized businesses. There are group businesses, and this is when the big tactical element as well because the market is very dynamic, the pricing change is dynamically. And therefore, how to first you adjust, and how you hold on to your BAGIC risk parameters is what defined of this company, and that is what we try to do overtime.

[Prakash Kapadia, analyst]

Right. And any sense on the PP price hike, and it's been almost the third year now, no hike from the government. So any sense what and when is there any possibility of price hikes, we are...

[Tapan Singhel, executive]

Yes, we should not be blaming the government, and I don't think. [indiscernible]. See, the process of PP price hike is data is sent from the industry to the [indiscernible]. Rater looks at it. And if the rater feels that there's merit and they look at the micro level of the increase in certain section and decrease also [indiscernible]. Some the recent the ministry and I'm barometer [indiscernible] and then takes the call. I mean this is a process. That's really transparent process. The industry has represented [indiscernible], later now. We see merited and they need a push.

So that is how the process gets done. From an industry perspective, there'll always be [indiscernible] look at the overall environment of the price of the commission of the combined ratio and then see where the merit would be. And then they're [indiscernible] basis. So it's a process.

As of now, I think for the past few years, we do not see a merit increase and expect to happen this industry has recommended. Let's see how it goes.

[Operator]

The next question is from the line of [indiscernible] from Emkay Global.

[Unknown Analyst]

So two questions. First, on the motor side. So the motor result has been growing at a slow rate. So any outlook on the second half of the year? And any change in strategy which would be in the motor segment going forward?

And secondly, I mean, how are the trends in the motor OD in terms of renewals versus the new auto sales which is being done? And my second question would be for BALIC. The Group Protection segment has grown by 25%, so just wanted some color on how the credit life and GTI businesses are performing for the H1.

[Tapan Singhel, executive]

Okay. So if you look at the motor business group. See, as I mentioned previously, the commercial vehicle with the stagnation in PP price hike and if you look at the frequency of accidents happening has moved up in terms of the PP assets compared to the time when COVID was there. And in fact, pre-COVID also it's moving up. The frequency going up was previously moving on commercial vehicle space. That's why we have, as I mentioned earlier, slowed down our exposure in that line of business.

Now if you see a price hike coming in, then obviously, our strategy [indiscernible] change. If we don't see, then we would be cautious in that business. And that's why you see our growth lower than the market growth in motor. But that is, as I said -- this is fine. We do it for so many years. If we fine from business that doesn't make economic sense, then we slow it down. And it may -- can be increased. So the future statements depend on do we see a price hike or we don't see price hike in terms of what we should have given over [indiscernible] over 3% for the [indiscernible].

[S. Sreenivasan, executive]

Yes. So the question is around the growth turn side on the credit life side, particularly. So I think directionally, you have been commenting on this every quarter that particularly last year, all quarters, we were focused on de-risking ourselves because we largely used to work with 2, 3 partners, and they used to consume a big part of our share. That has the task for us this year is, will remain that we get on to more lines credit life business and get more and more partners onboarded, plus that we can diversify ourselves. As a result, I'm happy to say that today, we have about 80 partners. And within this, about 22 banks with whom we are already on the credit life side. There has been -- while we've grown because of a smaller base last year, the color is different shades within this business. Some of the profitable parts of the business has have degrown and some of the businesses which consume a little bit more time in growing and of course, may not be as profitable as the rest are going faster. Hence, this balancing act will -- the balance will emerge as we go.

As you may be aware that the credit line businesses for most orders have slowed down, but I won't really jump enjoy for the growth that we have shown here because of the base effect. I think we are just getting back to where we ought to be.

On the whole, there is a lot more competition emerging in the credit life side. And as a result, margins for credit life will remain to date as we go by.

[Unknown Analyst]

Just a follow-up for Tapan. I just wanted to know I mean how are we doing in the Motor OD segment, the renewals versus the new car segment?

[Tapan Singhel, executive]

It has been consistent. I think we improved on that. But again, if I look at the numbers from an industry perspective, it will be a month [indiscernible].

[Operator]

The next question is from the line of Supratim Datta from AMBIT Capital.

[Supratim Dutta, analyst]

My first questions are on the BAGIC business. So Tapan, you highlighted the challenges in the retail health segment. Just wanted to understand if you could elaborate that what are the real challenges in this industry, and how do you see these challenges being resolved going forward? That would be my first question.

And a second part of this would be if you could split the loss ratios in the health segment between retail group and government? That would give us some clarity about how things are moving in the segment.

Now the second question on the BAGIC business was, again, on the motor side. I understand that you have done fairly well on the motor base you were early in the CV business and now you are slowing down there. But overall, the outlook for the CV segment as well seems to be weak based on commentary from some of the OEMs in the second half of this year. So in this scenario, how do you see this book growing going forward? And what could you do to offset the slowdown? Is there opportunities for market share gains or from a per share gains in certain OEMs. Just if you could give some color on that, that would be very helpful. I have a few questions on BALIC, but I'll get to that after this.

[Tapan Singhel, executive]

Your final question, I'll explain the different portfolios and the strategy behind that but a humble request, and I have said this in the previous calls also in this call also is don't ask questions on micro level of plain ratio BAGIC issues. Those, I would restate my comment on because the business is strategic. And now when you start giving micro level claims ratio, it opens up to the entire market. And that's what never in the past also done that. Now whatever is available in terms of the loss ratio, the intent is public disclosure of the GI business, I think if you look at it and go with the website and get that. But now let me come to the retail health and the challenges with retail health.

So if you look at health, this is globally a phenomena of the health business and India specifically. So the outgo happens at hospitals, and hospitals are not regulated in the Indian context.

The inflation on the expenses that the hospital level, medical inflation and you all are aware reported, moves up much faster than the price which gets built in the retail health portfolio. And they're also quite a bit broad, which keeps on happening in this space.

Now if you increase the price too dramatically, then it hurts the end consumer because unlike Motor, whereas a vehicle ages, your insured value comes on. So the priorities actually comes on.

In health, as a person ages, the price starts moving up and the inflation also happening are moving up. So the price is a very sensitive to part of the health portfolio from a customer perspective and rightfully so.

While the problem in Auto is that you have a medical inflation, which keeps on moving much faster than the pricing which gets done and you also have products happen.

So the way the industry is trying to handle this is to one, and health exchange is being set up with the government NHS [indiscernible] Every insurance company has plugged into that health exchange. And hospitals are a bit reluctant to plug in as yet, but talks are with them because that will bring in transparency in terms of claims. So the industry wants to pay claims as soon as possible, immediately, but the transparency of the documents of the procedures we put on exchange, so there's a flow of things happening. But there's reluctance from the hospital as of now, but conversations are on to see how do we get them on board. So that would, one, bring in more transparency to the system, which would be better in terms of overall seeing how things move.

The other issue would be if you look at in terms of the expectation from the customers and the regulator to the industry that you should be covering everything, every possible means of treatment. Any means of different segments of the society, and nothing should be missed out. And you should be serving the customer in a way that they have the least of difficulty, which is a very fair as regulator.

But you have to put all that together, it's also cost of servicing to the customer, and that also moves up in terms of costs of the companies. So when we put all this together, it is not something which you can easily say that it will -- at any point in time, be able to generate a substantial amount of profit in terms of the business, which has to be, but it is a substantial amount of business. So you have to be there and you have to make yourself more efficient, much more better in terms of servicing customers and build a good brand. So overall, this is a summary of the retail health that you asked me in terms of its and the challenges, which is there, how the companies have to keep on overcome at a company level, at the industry level and to be able to provide very good service to the customers in terms of which [indiscernible] is in terms of their own health and also you have to very sensitive toward that and provide it better.

If you look at Bajaj Health, there's a follow-up to set up RMs at hospitals, people standing there for a customer to take care of them when somebody would really get confused, some of the major hospitals with people there.

We're also looking at the RM servicing the customers. We also came out with very interesting products for senior citizens, which actually had and has a provision that there's a variable [indiscernible]. If somebody falls or [indiscernible] emergencies that we send ambulances over, get them picked up, taking the hospital, bring channel there, get them treated and get them back.

We also came out with global health cover that it is not that it's getting treated in India, [indiscernible] you can get treated anywhere in the world. So we have done a lot of innovation, and we're trying to bring the best product.

And I look at interesting businesses, models in which we try to see that we're not only just pure paying claims, but also ensuring that we are able to take care of the customers beyond them take care an emergency customer. So it's a constant improvement and a constant push, but this is in short, the retail health state.

On the motor, your question was -- I didn't hear that.

[Supratim Dutta, analyst]

So I was asking for the second half, how are you looking at growth given the commentary from OEM suggests that it going have to...

[Tapan Singhel, executive]

Yes. That is why if you look at motor growth overall, the industry has come down. So you have the [indiscernible] sale of the vehicles have been down, and that has impact in terms of the growth of motor and we see that. And I said if the TP if that does not happen and with the inflation of costs in terms of TP are moving up that actually it's the reason why we have to still look at segments, which make sense and be there. So you have rightfully seen that, and let me see how the second half builds up.

Right now, there is a stress on the sale of new vehicles happening. But as a company, we have a substantial share in the new vehicle sales. So I don't think I would see a huge difference from the current level of growth which is happening, either plus or minus. So that is a forward-looking statement, it will depend on how things move the TP price hike, how does the sale of vehicle moves up. It is subject to sort of these parameters for the second half or this quarter.

[Supratim Dutta, analyst]

Got it. Tapan, thanks a lot for the detailed explanation on the retail health side. If I could just ask two follow-ups here. So one is do you see a need for different structures to emerge on the retail side in terms of products, maybe something like a [indiscernible] permanent, which is there in the U.S. some time that kind of a model to better value distribution between the insurance company and the hospital?

And so who would be -- do you see GST that is talk around GST rates coming down? Would that be a release enough to really drive growth or make this product a bit more attractive for insurance companies and such?

[Tapan Singhel, executive]

GST will play role and that has been the demand from [indiscernible]. And we're actually seeing positive feelers at least from the senior citizen demand and the low coming soon -- coming right now, but let's see how it emerges, which I believe is good, at least for seniors, it really is good.

It helps it gets more expensive as you age. So [indiscernible] would actually make a few different because that is where the health requirement is very high also and we are focusing on that.

And to your point, health business will emerge. It is in a constant set of churn, and we are seeing some good models of either discovery in South Africa or most to some extent, a part of the U.S. model. This churning will keep on happening and [indiscernible] will happen in the health portfolio, but one has to build it in a very long-term basis.

In motor business, you can say no to renewals. In health, by regulation, we can't say no to our renewals. So you have to be very cautious of building a very good book with exchange and stage for like forever with that kind of stuff.

[Supratim Dutta, analyst]

Got it. Just one question on the BALIC business. I understand that you have grown very strongly this quarter. But today, how the markets have been over the last 15 days and considering that some of the commentary from some of the [indiscernible] company suggested there is steps building in the middle income households. How do you see this unit growth sustaining going forward? And if it does not sustain, then how comfortable are you that to shift this growth to other products if you could give some color on that, that would be helpful.

[Tapan Singhel, executive]

Right. That's a good question. Yes, it's has been an abnormally good month in terms of top line. And hence, when the top line comes with easier selling products, they do lead to a bottom line hit. So I'd be happier we got a more balanced product last quarter.

What you see is that we've been working on our product mix kind of get it balanced all the way through. Broadly, if I was to indicate the ballpark of [indiscernible] way it has had the market, some of the markets, the [indiscernible] cross 82,000, our units were moving closer to a very high level of almost 16% of our product mix.

And this, then we retrained our teams, got them focused on broader sort of customer needs. And we were able to actually control it, if I can use the word control, but ideally, balance is the best word here through what remains our usual mix.

And if you go back and look at how are quarters will moved or how the years and us ending, we'll end up balancing our product mix over a period of 4 quarters in a year, but we do let customers and distributors tell the flavor of the month. And as markets are now kind of cooling off a little bit, we will be back to a predominantly traditional product mix. That's where BALIC has always been.

BALIC is largely a market leader in the mid-segments already. Yes, I have been listening to the commentaries that there is an issue around the mid-segment. But at the same time, if you look at the way people who have money in hand to spend away, other indicators are moving. It's a mixed bag. I don't think it's a clear indication that people are kind of cash track because spending on homes has gone up. Stamp duties have been higher.

You see middle class coming out and spending a lot more on travel. So it's not that there is -- we are seeing any significant risk there. And our products usually are well-thought through. It's a very high evolving product and do remain resilient to -- we announced to minor volatility of such bit. This would largely spin out more from the credit life business, but not necessarily in the long-term saving plan. Hence, we don't see an issue there. I think what you will see is our mix getting more and more balanced to what we are usually accustomed to have.

And last year, this quarter 1 where we had a significant yield system quarter 2, but good thing is the best quarters of the year are yet to be kind of pronounced in the coming in. And as our mixed balance out here, overall, I think the year should be a lot more comfortable. And we don't have an issue on demand on longer-term traditional plans because traditionally, that is what the BALIC a been on for anyways.

[Supratim Dutta, analyst]

Got it. Just one question on that one additional products will become larger in the second half is what I understand, but there is also an impact from surrender charge, higher surrender charge and renegotiation of some of the commission contracts with your partners. So if you could give some color on that, how do you see that play out? What would be the impact on the higher surrender value? And how are negotiations with your partner going ahead of the impact of the [indiscernible] So that's last one.

[Tapan Singhel, executive]

That's a great question to ask at this juncture. See, surrender value, yes, this put us in [indiscernible]. I'd admitted and has also put distributors and [indiscernible] because it's more than anything else because of surrender value, the cost of distribution, the cost of commissions have to come down. Only then can -- they have to plateau out in such a way that the first sales commissions have to come down.

I think the distributors have been quite in sync with manufacturers, and they realize this and the fact that this was going on for almost like 6 months of discussion, this is already seeped into the bloodstream of the sectors, and it had its time. So while there is some small aberrations that are in there, but largely, most distributors have either taken a commission cut or deferral. And I'm not just saying it for BALIC. I'm saying it for the entire sector. BALIC, of course, is led also from the front as always. And it is kind of getting share. This entire bit is getting shared.

And as we go ahead now, we will see more and more, I'd say, plateauing out of commissions relatively, and that should help persistently because you get your [indiscernible], higher commissions versus what they used to be earlier, only a few more persistent. The more persistent you are, the lesser the probability of surrender. And it is I think -- it has relatively been a very well informed -- I'd also like to thank the regulator that they could come up with this. And because it was largely publicized, distributors have basically been in sync with the manufacturers as well.

[Operator]

The next question is from the line of Dhaval from DSP Mutual Funds.

[Dhaval Gada, analyst]

A couple of questions. Sorry, I missed the opening few minutes of Sreeni's commentary, but just on this news low around Allianz looking at exit. Just I wanted to understand how are we thinking about sort of this event in terms of, let's say, if we were to buy funding of this event. I mean, some perspective around that would be useful. How are we thinking about it?

And then the other question was relating to the Life Insurance business. Directionally, not -- maybe near term, but just directionally, we wanted to get closer to the listed peer group in terms of VNB margins. I mean I just want to get some perspective that maybe on pace of change may have got derailed in the current year with the product mix and the regulatory changes, et cetera. So is that still on track in the next 2 years or so FY '27? Do you think we will be getting there? Or there is any change to that thought process? Yes, those are two questions.

[S. Sreenivasan, executive]

I'll take the first question. I think you actually correctly said you missed my opening remark, in which I had said that, we have made an announcement. It is advanced decision to exit. They have informed us. Beyond that, we have nothing more to communicate at this stage. So there is no further questions that we'll take in this call as well.

Your second question, I think Tarun will take it.

[Tarun Chugh, executive]

Yes. So another good question. I'd say that you have some dealing for the quarter or 2 here and there should be the only outcome of this because like launched in the previous one, distributors have realized that this is a situation where they'll have to be as much of the brand as the manufacturers are, and there has been multiple actions we've taken. So that should ease the impact.

Yes, directionally, we are committed to moving our NBM margins or when normally we look at VNB because NPL margins not at within [indiscernible]. The NPV is what we look at, and that is what you will see pulling direction, a slight, I'd say, aberration for the quarter because more because of [indiscernible] because it's an undervalue piece in last quarter. But the trajectory remains up, and we should be -- we are in shape to start moving in the direction of the rest of the companies among the top 3 or 5 companies that have been. And you'll see us getting there because traditionally, as you may have seen, BALIC is a turnaround case. We have moved in from single digits to double digits already and now we are in the mid-teens. And nobody is more keen than the team and me to ensure we get to where the players among the top cohorts that we have. The one we compare ourselves with, we are committed to getting there.

[Dhaval Gada, analyst]

And sorry, Tarun, just if I may take a follow-up on this one. So like the market share change that has happened over the last few years. Now we've got to a particular size, I mean, in terms of like a rolling 12-month AP market share would be about 5% plus. So from that perspective, the incremental pace of market share change may moderate, and we are seeing that in terms of the steepness of the market share gain has started more moderating. So how do you insulate the -- this current position and then ensure that the gains still continue because historically, we've seen in case of some of the other companies like Tata or Kotak and even in Max, they get to this point and then they start sort of losing ground. And then again, there is 1, 2 years of correction. So just on growth to ensure that this VNB margin comes through, how are we sort of looking at navigating this size and ensuring that we don't falter on that?

[Tarun Chugh, executive]

So it's not about, first of all, I must comment that I think you've done your homework quite well. And yes, other companies would have moved laterally and not necessarily the statements would have continued. We need to understand that steepness is also a base impact, right? So when we are small, it was steeper. If you look at the number of thousands of crores we had possibly that would remain similar. And in percentage is, maybe not percentages growth may not always remain the same as the size gets to be larger and larger.

What we are committed to is how is this market share coming? Is it coming from the more profitable products and more customer-friendly products? And are we growing our base of customers? Are we -- is that distributor capability enhancement in the right trajectory?

We have all these input parameters that if we monitor, directionally, we can remain on these positives. The pace of growth of top line is essentially an outcome of all these things taken in conjunction. And you shall see that. Like for example, I understand why the numbers say what they say. I'm particularly very happy to let you guys know that we are now the third largest company in the life sector in terms of the number of policies. We said in the private sector. So we are punching way above our weight class there. And that gives us capability to upsell.

As you know, [indiscernible], since group is particularly known for such capability. And this is what we are always enhancing that are we getting to more households, are we getting into more cities? Are we adding more distributors who are active? How does the quality of sale goes? Because all of these, they are there, directionally, the growth shall remain. Trajectory be positive. We've always committed that we'll be twice the growth rate of the industry and which is what we've always been mostly more than that. But it is important that with that, the bottom line also moves faster, not to wait on this quarter, but faster than the top line.

[Operator]

The next question is from the line of Brad Shin from Motilal Oswal.

[Unknown Analyst]

So firstly, on BAGIC and so kind of linked to the tariff hike as well. So we've seen the motor TP loss ratio for you and one of your core competitors, a significant improvement in loss ratios over the last couple of years. And so in that sense, whether, first of all, what are the reasons that is kind of driving this loss ratio improvement? And secondly, when the regulator or the government kind of decides the tariff hike, is it specific to more linked to loss ratios? Or is -- because acquisition cost is all company strategies rather than driven by anything else? In that sense, does the loss ratio play a meaningful role? And in that sense, the probability of price hike goes down given the trajectory that we've seen? That's a question on BAGIC.

On BALIC, if you look at the industry, where we are getting more granular with the agency channel and direct channel reporting very strong growth for even in your counterparts on the private side, how does the kind of structure with respect to the infrastructure capacity that the companies would have or the industry would have -- will have to change and the investments will continue over a longer period of time, keeping the costs elevated and so the margins possibly could be restricted? Yes, those would be my questions.

[S. Sreenivasan, executive]

Tapan, Repeat the first one on. Our loan loss ratio is, do you see any trend in that evolving?

[Tapan Singhel, executive]

Yes. So if you look at it, and I mentioned earlier in my -- in the call also in the previous calls that it is a balancing of portfolios. I did mention that commercial vehicle, we have been kind of conservative on that line of business.

If the mix changes, the losses will change, We see an overall loss ratio yes, which you are changing the mix of class of business, which is a higher loss ratio, moving the mix of businesses, lower loss ratio, then overall, your loss ratio will improve. That is how it goes. And you see that they've been doing enough for quite some time because obviously, as I mentioned that from our perspective, if we don't see the price to be appropriate for certain class of business. So in those loss of businesses, we will become underweight. And the ones which are better, we keep on moving that base. And I said, broadly, you see the change in the loss ratio on.

Secondly, if you see also the COVID times, when COVID happened, then actually, the frequency has dropped but very unpredictable. So quite a few companies had dropped the ratio, making the frequency while we have still held it because of unpredictability, then the reserving can also put the unpredictability part to account for a time. And as it gets more predictable, so that ratio that you put fund bit will also come down over time.

So mostly, loss-ratio movement will happen with the selection of business at I think that is how it reflects on the basis. Now another point on overall loss ratio, again, segment-wise, it's different for motorbikes do require a price hike. Some requires a price decrease also, which have improved over time. And that is what the industry has recommended. Also, the industry segments based on pace the frequency increase and if you release this today currently. Then if you stagnate, then 6 months from now, with all the cases coming or a year from now, it is going to move up. So if the price hikes to happen, when you will take also into consideration the future movement based on the experiences currently. This is what the industry puts forward as their logic in terms of why the price is at certain section, not sustainable. And in certain segments, they just come down. So industry requires both. And the regulator helps has a view on how they look at it. So I hope this answers your question.

[Unknown Analyst]

Yes. So life insurance?

[Tarun Chugh, executive]

Yes. So again, another good question. So there was a time when we had more new verticals coming more bank partners getting tied up with us. I mean literally in the last 6, 7 years, from near 3 or 4 banks. Now we have close to 34, 35 banks now with us. So investment phase was significantly higher and usually will take a little time to get to productivity levels. We've been pretty much been concern in telling you that. We were setting up more new verticals than we were repaying from these at that time. But as we are now stabilizing at least in terms of the amount of new businesses that need to set up, we tend to put new each new vertical, higher costs, higher systems. That is now not such a significant part of the growth.

Now where we expect the growth to come is as we reach these relationships which have come with us, and it's more a horizontal investment now. So while we've added 40 branches this year, and we are now about 562 branches, the growth shall come in. Incrementally this is about 9% more on 8%, 9% more branches that we used to have earlier. But these are horizontal. So these don't require new verticals, new hierarchy, new non-production costs and no new significant systems to be added on this. So we will be starting to see the cost ratio is getting better as we go ahead.

And the other is, of course, more productivity is coming in. And we call it smart productivity where we are doing a balanced product mix that is going through with customers. Hence, you are not at risk of market volatility which is what you will see as we go ahead. And hence, the answer to the earlier question that come up, that helped the impact, positive impact on VNB growth will start coming in because the scale will be there, but it doesn't need to be built from scratch anymore.

[Unknown Analyst]

Was more specific to agency and direct channels, while on the institution side, I understand you would have built in a lot capacity with respect to infrastructure like the agency and direct channel where you will need to add manpower for servicing for major other elements of the business? Do you think that further? Another this gets delayed by another 1 or 2 years? Or would we need further investment in manpower?

[Tarun Chugh, executive]

Yes, I see further investment in manpower is also for costs that will be required. I'm not saying it won't be required. But I think given the strategic around the product mix, given the fact that we are already scaled up, we don't need to invest in convincing people to become our distributors, it is more adding lesser nonproductive costs. So if you're adding these producers, that is the good investment too, right? Then adding support staff to make it happen to you do need a basic amount of actuaries. You need a basin and to finance people, a basic amount of admin people when you're starting off. But once you are adding distributors or you adding reducing part of manpower, that's only positive.

In fact, I would say ABC and the direct channels are now getting to be a lot more profitable as we are seeing year-on-year with the product mix getting stabilized and not steering to 1 direction. That is what is going to help us grow our VNB more and more.

[Operator]

The next question is from the line of Sanketh Godha from Avendus Park. Due to paucity of time, this will be our last question, and please make it short.

[Sanketh Godha, analyst]

On revenue insurance, I have a question. I see you highlighted in the call that you are seeing pricing pressure in crop and maybe in commercial lines like fire. So we attribute this largely to OEM. So this will continue till next year because compliance needed to be compliant by next year. So the pricing and the profitability of this segment might be under pressure for the sector as a whole is the first question.

And counter question is the same at -- leading to the it should have been ideally delayed in the favor of motor business because the payouts are higher. So naturally, the price war or at least payout was would have moderated in that business. But what we understand from you is that we are seeing a different trend there. So I just wanted to understand how you are looking at this space. That's one the insurance.

And one thing on insurance, if you can quantify nonmotor long-term business in our portfolio in GDP. And that's that on motor note.

On Life, I know you indirectly answered that question on the VNB margin. But given we ended at the first half at 9.2% and even we are now going through the calendar rules, what kind of exit margin should we, as you reported last year, 13.6%, whether is it possible to get closer to that number or we will be off given we have a product mix challenge and then also the regulatory headwinds. So if you can give a bit of color on the margins would be useful.

And second data-keeping question is the negative operating variance in the EV walk is related to what?

[S. Sreenivasan, executive]

Yes. I think the first question was on crop insurance, the AUM and others, I think of Raman can take it. And the second was a little bit more technical question on life, I think Tarun can take that.

[Tarun Chugh, executive]

Now as you look at the first statement is we don't feel any pressure on anything, I think. So because we are growing much over the market and we have a combined ratio, which is among the best in new market rate. in terms of number of policies last year, we sold INR 3 crores, INR 60 lakh policy we should do that. So I don't think we'll feel pressure on is will the strategy and it will move.

If I take you back to a couple of years, back in the call, the question that I would always get asked is nobody is doing crop business. You're doing crop business. It doesn't make sense for other, then I would keep on saying, no, we will see that. And if you look at the results in crop, we did phenomenally well. And then obviously the results are good. We will come into the business ship. And then the margins would get narrow. It's a natural part of any business across the globe. The [indiscernible] insurance where people would see margins in the outcome.

We must play a role because it is very clear. The AUM has to be. But for the [indiscernible], I think we have been safely under the EM norms and still are very comfortable because we are much -- I think we are not even close to 30. we are below that. So we have among another well-run companies. So I don't think there's any pressure on EM to make attrition from our perspective.

Some play the market may have, that is their outlook, their call. They would figure out what is good for them and what is best for them. And accordingly, they will [indiscernible] and try to acquire business. But business movements happen based on how people see where the profit margins are -- what is the competent service the customer, what they can deliver based on that. And that moves.

But if you look at the GI business globally also, there's nothing which remains permanent forever. It's a cyclic. Some part of the business we'll have discounting happening. Some part of business we'll have hardening of rates happening. And it happens cyclically. If you look at e-insurance market also, they have softening happening. It's part of our business. So I think these persons do not put pressure on it, but it's part of the business? And how do you be agile to figure out and have the vision to see what would be the right business mix to have, and we keep on making those business mix and growing the business and ensuring that you serve your customers well that we look good and wait and we can do that. So that's part of business. I don't think we should too much [indiscernible] in any part of the...

[Sanketh Godha, analyst]

Tapan, the reason I was asking that question was that whether this, other than cyclical because the AUM has also played a role in pricing per share cost.

[Tapan Singhel, executive]

Let's say, I can't talk for other companies, for us, has no pressure, but I told you. And you would be knowing that since you have said it so well. We are much below 30%, and we're comfortable. And we have -- we don't have any [indiscernible]. So our vision making will have nothing to do with the pressure of the AUM. I think you know that and you see that.

Now if you need to come into something else's strategy is not share because they would be using the best strategy for their company, and I respect all my friends now in different companies. I'm sure they are thinking through what is best for them.

But if you ask me, if I had to do a strategy in terms of making in this call just to correct that, in my view a very short-term strategy. I would know or not do that. I would make a we used to run that business well for a very long time. We intend to the long-term business. They're not tie by the nice business. If you enter the insurance business, I have a vision for 100 years, then we are thinking of doing something. Just making strategy to correct in the AUM in short term, cannot play out. It will always be very short or we always hit you again on a very short-term basis. So I would pertinent [indiscernible] and do things just to carry on a short-term basis.

[Sanketh Godha, analyst]

Got Raman, if you can answer the long-term nonmotor business to GWP contribution?

[Ramandeep Sahni, executive]

So I'll answer that in directly. See, while we don't disclose such granular numbers like Tapan said, but I'll give you an indicative number. So if you look at our advanced premium growth, which is largely driven by the long-term businesses, that has grown at 20%. So that indicates that we are still growing in those lines of business at a healthy pace.

[Sanketh Godha, analyst]

My question was not with respect to motor. I was more keen to understand non-motor long-term business.

[Ramandeep Sahni, executive]

Okay. Okay. Okay. That will be closer to, I think -- see last year, I remember the number was closer to INR 1,000 crores, but for this year, some of the businesses has slowed down in that segment. So I'm assuming you're asking in context of the new regulation. So for H2, I think the number for that will be closer to about INR 500 crores from that one.

[Sanketh Godha, analyst]

Got it. Perfect. On Life.

[Tapan Singhel, executive]

Yes. So I'll just get it on the life re Sanket. So there are two questions I'll answer the first, and Vipin will take on the next one on the EV. But just on the VNB margin, directionally, in a way, already answered it. But just to be a little bit more specific within a year, you would see that we have a higher swing within our peer set. And usually, the first 2 quarters are most to date. And Q3, Q4 tend to be getting better because productivity is because second half is usually skewed towards the product mixes as well sometimes as well as a lot of the hiring that we do, it really happens in Q1 and Q2, and the productivity is really start kicking in only Q3, Q4.

So I don't have any major concerns on the exit numbers. The team is committed to maybe delivering better than this. But as we are closing out on all negotiations and discussions around the deferrals, commission reductions, I think we'll be a little better place to put a kind of a broad theme that is it going to be better or is it going to be thereabouts in another month or 2 because everything is now getting discussed and closed in the state, but we are -- we remain positive, is all I'll say because you asked a question on the regulatory with a new direction of the NBM.

[Sanketh Godha, analyst]

Right. But is it fair to assume that this could be potentially 100 to 150 basis points lower compared to what we reported last year, given the product mix and the regulatory change?

[Tarun Chugh, executive]

See, if I was a scaled-up company with margins having picked out, yes, I would be concerned. But we -- our margins are only just propping up in the last 2, 3 years. So I don't think for us to be at this number to stop despite whatever Yes. So because we are -- our trajectory was a lot steeper at this half year sense. So our aim is to get to that direction. Let me just say that to you at this juncture.

I'll ask Vipin to comment on the technical difficulties.

[Vipin Bansal, executive]

So the site question was on operating [indiscernible]varies. I think there are no major items. I think on a drip of close to about INR 9,300 crores or INR 50 crores variance, some of it is purely the way your persistency deals. Some of it is there and unit can go sell some products better persistence, we can cut both sites on 1 product, it could be or other it could be. But it's a small variance. I think that varies us, honestly, on this side at this point of time.

[Sanketh Godha, analyst]

The reason I was asking, Vipin, was that even given our partition has improved across the horse, I mean we are at a better scale, operating leverage should also play out. Is it largely related to mortality was my concern.

[Vipin Bansal, executive]

If your question is mortality, that's not the reason for this for us.

[Operator]

The next question is from the line of Nischint Chawathe from Kotak Institutional Equities.

[Nischint Chawathe, analyst]

This is essentially on a little bit understanding of the surplus capital or surplus cash that we have versus the deployment that we are looking at over the next couple of quarters.

So if you could just help us sort of understand that? I believe you said somewhere around INR 3,500 crores of [indiscernible] cash is what we are setting with, and maybe you should help in terms of how that [indiscernible] business?

[S. Sreenivasan, executive]

This is at the BFS level. And as you know, over the last few years, depending on the solvency increase, solvencies of both BAGIC and BALIC, we have been taking dividends from both BAGIC and BALIC. BFL also now has been a consistent dividend payer for the last few decades. So that is the primary source of cash flow. And however, we'll continue to build on that as we go along.

Of course, we have demand primarily from the mutual funding business and from our health care business for some amount of capital. At the moment, we are not envisaging capital requirements for our marketplace business. As we go into the future plans over the next few quarters, we will give you that situation, but we are not seeing that at the moment. And if we have any surplus capital, we may put a bit into our venture funds as well. So this is continues to be our plan. But over time, we should see the cash plus growth.

We also have a commitment over the next 7 or 8 months to contribute to the products warrants the balance 75% is due. We would be investing in that INR 900 crores.

[Nischint Chawathe, analyst]

Sure. Got it. And were you love ballpark the investments that we're looking at in [indiscernible] and AMC, I mean, if any number that you could...

[S. Sreenivasan, executive]

[indiscernible], but I think between the 2, we should be at the moment, looking at we will know clearly by February. But as of now, we are not looking at more than about of INR 500 crores to INR 600 crores over the next 1.5 years until March '26.

[Nischint Chawathe, analyst]

Both the companies look together.

[S. Sreenivasan, executive]

Yes, yes.

[Nischint Chawathe, analyst]

Okay. Got it. I think that answers my question.

[S. Sreenivasan, executive]

Based on the last year, [indiscernible] I cannot comment for a set [indiscernible] a commitment now, but this is what this looks like.

[Operator]

Ladies and gentlemen, this was the last question for today's conference call. I would now like to hand the conference over to Mr. Sias.

[Unknown Analyst]

Thank you to all the participants for joining the call and a special thanks to the management team of Bajaj Finserv for giving us the opportunity to host the call. Thank you.

[Operator]

On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

[S. Sreenivasan, executive]

Thank you.

[Tapan Singhel, executive]

Thank you. Thank you, everybody.