Bajaj Finance: Strategies of a Lending Giant - [Business Breakdowns, EP.165]

25:04Everybody else barring BFL will take a couple of hours for that consumer durable loan. BFL is 90 seconds. The reason for that matter is they've already credit assessed the customer long before the customer walked into the store. Now, you as a new entrant into the Indian market will say, I want reach. I also want most people to get the loan. Otherwise, how will my product sell? I don't want the customer to have to hang around. I don't want a higher rejection rate. It's very difficult for anybody else to provide that plug and play. And thus, you create a virtuous cycle. All the players who want to sell their goods in India come to Bajaj Finance, Bajaj Finance finances more and more customers, more and more data, more analytics, better informed algos, lower credit costs, and thus the virtuous cycle spins away.

25:45There are so many great details in that differentiation and what goes into it. I have to mention we are recording this at 8 .30 PM India time on a Friday. So you've taken something from their culture and certainly applied it to yourself, which I appreciate. One of the earlier points you made was on the cleansing of the portfolio. And just to get a sense of how this works with underwriting. Is it a binary decision where it is a yes or a no, or does it extend beyond that in terms of the rate playing a role on the back end if there's delinquent payments? How much variance is there in the underwriting process?

26:24It's not a binary decision. They are basically risk pricing. And Matt, if you think about it, they're risk pricing across three different dimensions. As you rightly picked up, for a given customer, so go back to the doctor, the star oncologist in affluent suburb of Mumbai will probably get the lowest rate, but the GP in the boondocks will still get a rate, albeit a higher one. So there's differentiation across a specific set of customers. But there's two other differentiation. The way Bajaj runs the business is there are 40 different lending heads. So 40 different products. Each lending head basically runs a mini company.

26:57So he'll have his net interest income, his fee income, ROE, ROA, the whole nine yards. The more successful the divisional CUS, the more capital she will get from the corporate center. So the corporate center is saying, hey, I will give you more money if you can show me growth at a really good ROE. And I'm also tracking your risk metrics, by the way. Secondly, each CEO can discriminate across customers. And thirdly, within a specific product. So for example, within home loans, the CEO can say, I reckon this is not a good time to be giving home loans below $20 ,000 ticket size. Let's ramp up on home loans above $100 ,000 ticket size.

27:34So there's differentiation within a specific segment of customers, there's differentiation across different parts of the business, and there's differentiation across sub -segments of a specific industry such as home loans. The ability to allocate capital on the fly in a giant economy at hyper speed. Remember, the book is growing every two and a half years, the book is doubling. So the ability to put all of this on an industrial scale is again critical skill. And effectively, they're making millions of capital allocation decisions every year. And by and large, those capital allocation decisions are working out.

28:06And in terms of managing that risk, are they able to work with the manufacturers at all to assume some level of that risk where rather than getting 5 % discount to the list price, they might get 6 % or 4%, something along those lines where there's an adjustment, or is it all being managed on their own books? So at the store level, I'm not so sure whether there is a variable discounting policy with the manufacturers. But what we do know is in their online proposition, they've got something called the Bajaj Mall. It's an online store. You can buy durables, auto, all manner of electronics. And one of the things we can see there is roughly on one -on -three products.

28:45In one -on -three products sold on the Bajaj Mall, you can get prices lower than Amazon or Flipkart. And we did some work to figure out how this is working out. And what we figured out by talking to some of the auto companies whose products are being sold in Bajaj Mall is Bajaj's algos tell their lending heads, for example, how many 600cc mountain bikes will be sold in the next 30 days. So they will go to the manufacturer of that 600cc mountain bike and say, listen, we're going to sell 20 ,000 of these. Can you give us a lower price than is available at any showroom in the country? And can you also ensure that the price is lower than what you offer anybody else, Flipkart, Amazon, whoever?

29:23And as a result of that, as a result of them being able to predict, Bajaj is predicting how many people will buy high -end phones and cars and bikes. They're using the algo to negotiate a bulk discount. And as a result of it, their online mall, the Bajaj Mall, has premium products available at discounted prices. So that's where we've seen the discounted kick in. I'm not so sure at the store level, they've got variable discounting going on with the manufacturers. Very interesting point, though, and the way that they can play around with the scale advantages that they have. And ultimately, seems to be an extension of the sales force of these manufacturers in many ways, and in a very, very impressive fashion in terms of how they can drive a lot of that.

30:03On the culture point and the willingness for the workers to put in this time, you mentioned the monthly bonus payments. Is that unique to this business? Is that fairly common in India to see something? I think in the US, we see quarterly and quite a few sales positions, but monthly is very unique. I think many parts of the Indian financial ecosystem will have a monthly bonus culture. What's unique is the metricization and the fact that human intervention is not driving the monthly bonus payment, that it's algo's driving the whole thing. So the stockbroking sector, for example, in our country, many parts of the banking ecosystem, the credit card industry, there will be monthly bonus payments unquestionably.

30:44But most cases, there is human intervention. I think what Bajaj has done, and quite deliberately so, is made it very transparent and thus made it obvious to people that if you're an ambitious young professional who wants to rise in the financial services world and you want to get rich reasonably quickly, this is the employer of choice. So I've seen whenever I go to their office, the average age of employees will be south of 30 hungry young people. And when we have traveled around India, Matt, when we've gone to smaller towns in India, the town head will be typically a 28, 29 -year -old, three or four years out of college, hungry young man or woman, pushing himself hard to make sure that those incentives click in into his monthly pay.

31:24On the geographical reach and the expansion within India, I think one of the takeaways from our series Return on India and just what you described earlier, population is basically 20 % of the globe, it's not homogenous. You have different areas, different cultures within those areas, different demographics, particularly on the wage side of things. As they've expanded, have they hit any bumps in the road as they've gone into more and more of the geography? How has that expansion gone? And have there been any hiccups along the way? So look, I think I'm sure there have been geographical hiccups. I think for reasons of political sensitivity, they probably don't make those public.

32:05So for example, the eastern side of India is lower income and lower growth than the west and the south. In fact, the south of India is almost twice as rich as the rest of the country. And therefore, as you can imagine, the west and south, Bajaj has had far more traction. Some of the poorer eastern states, I reckon their footprint is weaker. Where I think they've been able to, and this is both a forward looking point, and I think a point about the last three, four years, where I think they've got a real tailwind behind them is the rise of mobile data in India. So 2016 is when Jio launched its incredibly cheap mobile data plans.

32:38Basically, the cost of mobile data in America is 40x what it is in India. So we in India get incredibly cheap mobile data. And Bajaj Finance realized that as mobile data gets cheap, Indians will take to their mobile phones. So around three years ago, I think at the height of the pandemic, they pushed themselves really hard to launch their app at the height of the pandemic. And that resulted in 50 million plus downloads. Interestingly, they didn't spend a single dollar on marketing that. Without marketing that 50 million downloads and the Bajaj mall and the app interplays, the app not only has lending, it also has the mall.

33:12I think they also have stockbroking on top of it. India is adding roughly 10 million to 20 million new stockbroking customers in the Indian market every year. So you're seeing the creation of an online financial services giant in the space of three years. And not only is it stockbroking, not only is it the Bajaj Mall, not only is it lending, but it's also a payment app. Their Bajaj Pay app has been very successful. A decade or so ago, the government launched a variety of initiatives which have resulted in something called the Unified Payment Interface. Basically, half of Indian GDP now works on Indians paying each other using their phones, using UPI.

33:48But to access UPI, you've got to go through an app. So Google, for example, has a very successful app. But Bajaj Pay has also scaled. My reckoning is the largest fintech player has effectively become Bajaj Finance. And they've done so really quietly without any burn on marketing at all. The 50 million app downloads. We have Tinder in the US for much different reasons. But I think you could tie all of these things to various needs of people that gets ingrained in us. One last point on the things you described, and you've touched on it a few times, the importance of the physical presence in stores and pairing that against that app presence, which I think you pointed to, and particularly during the pandemic, why it was so important.

34:29As you look into the future, I don't know if you have a sense of what percentage of business is now done through the app or online versus in -store or on -site, but any sense of what that looks like as a split? And then just your general sense of where you expect those to trend over time. I think starting with the in -store presence, both with the local consumer durables store near my house and in general across India, I've seen that the in -store Bajaj Finance guy or girl basically does two things really well. Firstly, they will urge you to upsize your products. So if you're buying a 32 -inch TV, why a 32 -inch TV?

35:04Surely you look like a person who could do with the 42 -inch TV. And again, that's a win -win for the retailer and for the OEM. And the second thing is, once they've realized that you've bought as big a TV as you possibly wanted to, they will start the process of cross -selling the Bajaj Finance products. So, Matt, I see you've taken a TV loan. Do you know we have an extremely attractive offer for car loans? Here is our app. You might want to look at the car loan offers on that. So, the in -store customer acquisition is both driving up the ticket size of that loan and then beginning the upsell journey for further loans.

35:37The amount of share that the Bajaj Finance desk in a store will have will be somewhere around 70 -80%. I live in an affluent part of Mumbai where you think people won't need a loan to buy a fridge, but I go to the local durable store. They tell me that 90 % of consumer durables are bought using credit. And out of that credit piece, 80 % is Bajaj Finance. And therefore, you get numerous opportunities to upsell and cross sell to affluent people. Coming on to the online versus offline piece, online isn't still a meaningful part of the book. The online piece is still, I think, business development, where they're building out their key assets.

36:14If you hark back to the 2008, 9, 10, 11 era, they basically tried and played and experimented for four years before they hit the accelerator. So 2008, 9, 10, remember I was describing the 10 ,000 doctors and how they experimented. I reckon there's a heck of a lot of experimenting going on. The reason I suspect that is over the last year, the amount of automated calls that I get from Bajaj Finance and the automated messages have stepped up. And I keep reading these messages. And as an investor, I'm very interested because the messages, our formats change, the ticket sizes change, the interest rates change.

36:49So I reckon there's a whole bunch of tech work going on, on using the app using the payment app and the mall to figure out how best to optimize. And again, that's a sign of what I think is a very successful company. No decisions made in a rush. Experiment with small ticket sizes, small amounts of money at stake. Once you're completely sure that you've got it nailed, that's when the cannonball, that's when the ramp up will come. Makes a lot of sense. Transitioning a bit to the financial model with banks or with lenders, it can always be tricky to paint the picture relative to traditional operating companies.

37:23How do you frame the business, particularly from a financial model standpoint? So the flow through of numbers is reasonably straightforward, and it's been very stable for the last 15 years. So roughly, let's start with the $40 billion. That's the loans outstanding. That's the asset base. And I'm going to express everything as a percentage of this $40 billion. So net interest margin is 10%. Nobody else in India makes a 10 % NIM, and you're operating on a colossal scale, 10 % NIM, then 2 % fee income. Remember the zero cost EMI, there's a fee involved, the 2 % fee income kicks in there. So you're making roughly 12 % from the customer.

37:58Knock off 4 % for OPEX, 1 .5 % for provisions. Again, nobody of this scale in India has as low a provisioning cost. So you've knocked off 4 % OPEX, 1 .5 % provisions, you're left with 5 .5 % of PVT. That translates into PAT of 4 .5%, you level that PAT 5X, you get to an ROE of 22%. This 5X leverage, amongst the big lenders in India, this company operates with the lowest leverage and yet generates the highest ROE. So 4 .5 % PAT resulting in 22 % ROE. If you multiply that 4 .5 % PAT with the $40 billion loan book, you get to the current profitability, which is a shade under $2 billion. That flow -through of numbers I gave you, Matt, 10 % name, 2 % free income, 5 .5 % PAC.

38:43Nobody in India operates on this scale with those numbers. These are unbelievable numbers. Beyond the other aspects we've discussed, which underpins this company's success, there's a few other things. This is a very lean operation. There's no marketing costs. There's no big spend on advertising. Customer acquisition costs are low. And just to give you a sense of how lean these people are, I remember it was around seven or eight years ago, they had a consumer discretionary finance loan agreement that used to be 10 pages. They applied their mind to it and figured out how to get it down to three pages.

39:12That detail across millions of loans helps save costs. So low acquisition costs, low marketing costs, high interest rates, high NIMS, and an extremely profitable business with a DuPont, which no other lender in India has been able to match. One of the things that when you were first describing the business, I expected to happen was you had these customers that maybe didn't qualify for traditional credit. But what I expected is at some point in the future, they would graduate and maybe move out of being a BFL customer into being a traditional credit card customer. What you just described there in terms of your neighborhood and the amount of loans that are still done through Bajaj, it doesn't seem to be the case.

39:57Is that something just thinking about the churn or the maturity of the customer base and whether they actually transfer out of BFL. Can you describe whether it is surprising in the sense that they do retain many customers or if that is one of the dynamics that takes place and they have to basically replace those customers in the future? So I'm sure there's an upgrading of customers that is happening, but the funnel is also feeding in millions of new customers. And my reckoning is that somewhere around 5 % to 10 % of the book is balance transferring out and a larger number is coming in. Now, there's a very clever thing that the Bajaj management started doing 12 -13 years ago to manage this.

40:39Remember, I mentioned the 40 business heads that they have. The businesses are broadly segmented into two groups. The scale builders, businesses which are scale builders. So for example, housing finance is a scale builder. A scale building business will have relatively low ROEs. The risk is low. It's supposed to be a low risk, low ROE business, but it allows Bajaj to build colossal scale. And then there are profit maximizers, businesses which are higher risk, but will generate juicy ROE and thus keep the ROE high. So what Bajaj does is basically combine the scale builders and the profit maximizers 50 -50.

41:12Now, just to help explain why this is relevant, if you know that in housing finance and home loans, there is a natural tendency for customers to refinance under a lower rate loan. But if you know that you keep your home loan rates very competitive as it is Bajaj Finance has the lowest cost of funds in BFC sector in India. Over and above that, you're effectively able to cross subsidize your housing finance business, for example, with a microfinance lending operation, which is lending at 22 -23%. So you're minimizing your balance transfer out risk by your low cost of funds, but also by having elsewhere in the Bajaj Finance empire, high ROE businesses in niche sectors such as microfinance, such as CV finance, and so on and so forth.

41:55And every year, what we see is they blend the two. So from what we are seeing, they're planning to bring two -wheeler loans. Two -wheeler loans will be 20 % ROE, high -risk loan. But alongside two -wheeler loans, which are high -risk, they're bringing in new car finance, which will be lower ROE. New car finance is a highly competitive market. It'll probably be a 12 % ROE business. By constantly blending the high -risk and the low -risk, they're able to make sure that the low -risk customers don't BT out, any more than they absolutely have to. The natural transition from everything in the financial model is to the capital allocation.

42:28And again, with finance businesses, capital allocation is different. A lot of that capital gets recycled into new loans. How do they treat capital allocation, particularly with the addition of thinking about shareholders, leverage dynamics, anything else that comes into play for this business? So what we've seen over the last decade or so, and it's also taken a little bit of time to piece together exactly what they do because as you can imagine, they don't want to share all their secrets with third parties in the world outside. This LRP process that they undergo every year, somewhere in autumn, October, I think, they go through the long -range planning process and they hit upon these five -year goals that they want to attain.

43:06Typically, from what we can see, Matt, they are hitting their five -year goals every three years. Now, the five -year goals tend to be around trebling the business over five years. But rather than trebling the business over five years, we're ending up seeing that often they're able to double within three years. And by the time they get to the five -year mark, it's well over tripled. Now, that pace of growth, that pace of growth is sustainable because even though it's a $40 billion lending business, credit outstanding in India is $2 .3 trillion. And therefore, it's a 1 .5 % market share. What these guys seem to be targeting is they want to get to 2 % market share, I think, in the next few years.

43:41In order to do that, every year, they're saying we will open some businesses which are scale builders. So I gave you the example that they seem to be going through a process of opening a new car finance business. And alongside that, every year in the LRP, they say we'll also open some businesses which are profit maximizers, the two -wheeler business example. Another combination of scale builder and profit maximizer that I think they're targeting is corporate loans. Corporate loans, because their cost of funds is so low, they can enter an area which has historically been dominated by banks in our country.

44:12Banks tend to have lower cost of funds and naturally dominate corporate loans, but Bajaj is exceptional. So I think they're targeting corporate loans. They seem to be aiming for a 10 % return on equity on corporate loans. But just to make sure that that doesn't drag down the overall ROE, they're combining corporate loans with microfinance at 25 % ROE. So this LRP process every year in October says, here's the Mount Everest that we will climb in the next five years. Given the aggression in the business, they seem to get there in three years. And those strategic initiatives are around combining every year, a bunch of new businesses around scale and a bunch of new businesses around profit maximization.

44:46Headquarters runs that process. So very similar to say a Constellation Software or a Bakshar Hathaway, where headquarters is doing capital allocation. And at the ground level, each of those CEOs is running after the metrics that he's promised to deliver at the LRP. With an initiative like corporate loans, I certainly could understand where that too in a different playing field from a reputational standpoint, almost from a prestigious standpoint, it seems to represent something different. But I could also play devil's advocate and say, this is going to be lower return and it moves you away from your major advantages in many ways.

45:22So is this the right focus to have into the future? What are your thoughts just in terms of something along those lines and the positives and negatives related to something like that? So it's a valid point you've raised. A decade or so ago, when they entered home loans, I was similarly concerned, a little bit perplexed. My point was, what advantage do you have relative to the then dominant non -bank home loan provider, HDFC? But we've seen in due course that they've built one of the largest home loan books in India. In fact, I think there's talk now that they will IPO, they will demerge their home loan business.

45:57It's become so big. So we've seen Bajaj Finance do this. Identify an area that they're targeting. Identify a leader, usually from within. Give the leader a capital budget. Not expect the leader to generate astonishingly high ROEs. Their home loan ROE is significantly below the overall ROE of the business at 22%. So similarly with corporate loans, provided their ROE targets are realistic, and I'm pretty sure they'll not try to do more than 10%. provided their ROE targets are realistic, provided the Bajaj families clout and reach into the boardrooms of the country and provided this firm's ability to underwrite sensibly.

46:32I think there's a good chance of building scale here. Profitability is not something that'll come. And in order to prevent profitability from being compromised, they need that microfinance initiative to fire. So we doubted for a long period of time till six years ago, basically, I was a doubting Thomas on Bajaj Finance, saying, how can you pull off so many different things in parallel. But by decentralizing decision -making, by pushing authority down the line, by giving transparent incentives to hardworking, bright professionals, they've shown that you can build a lending conglomerate that can be, if not all things to all men, then lots of things to plenty of people.

47:10And one of the important dynamics, it seems like, in India, the private sector and the public sector do seem to have a tight relationship just in terms of the initiatives to drive growth and evolution of India as a whole. And I can certainly see why BFL has played such a large role in that and what they've done with their traditional strategy. Can you talk about that relationship that they have at the government level? And also, do you see ever any risks as they transition into a conglomerate lender, maybe moving into areas where they're more competitive with existing solutions? just anything along those lines as it relates to positives or risks with the business?

47:52So I think let's link this to the corporate lending point. We haven't had a proper corporate lending cycle in India, Matt, for now nearly eight or nine years. So the Indian corporate lending ecosystem ran into a lot of credit and NPA -related issues around 2014, 15, 16. And it's only over the last two or three years that the economy has pulled out of that mess. So the government obviously is very keen that project finance, corporate lending gets going, private sector The CapEx gets growing. And in that context, I think the powers that be in New Delhi will be delighted to see Bajaj Finance also stepping into the corporate lending arena.

48:25If not anything else, it'll spur the banks on to do more in the corporate lending arena, where I think both the most tricky interface for Bajaj Finance with the authorities and their most important regulatory interfaces with the Reserve Bank of India. So the RBI is our regulator. RBI is Bajaj Finance's regulator. and in RBI's case, they are very focused not just on credit quality, which for Bajaj finance people is not an issue, but they're also focused on consumer interests. And this is increasingly, I think, a fragile area for all lenders in India. As the economy gets bigger, as a rapidly growing lender like Bajaj finance pushes the envelope, there are inevitably areas of friction with the regulators.

49:04So just to give an example, I think around six months ago, six months ago, the Bank Bank of India said that they had found a couple of digital products where in Bajaj's key facts statement, there were some gaps. And the regulator's norm in India is to put up an announcement on its website saying we have hauled up XYZ lender for ABC reason. And Bajaj Finance received that treatment six months ago. It knocked off good 300, 400 bps of their EPS growth. So their recent results, EPS growth was only 21%, would have been easily 25 % had the regulator not hauled up Bajaj Finance and made them stop lending on those digital products.

49:41Fortunately for Bajaj, they've corrected the gaps that the regulator identified. And last week, I think lending has started again for those digital products. I think this is where the relationship will be delicate. The Reserve Bank of India is saying, we want lenders to treat customers fairly, whether it's on digital products or on apps. And there's a lot of gray areas. This economy is growing fast. And anybody who's found wanting on consumer fairness is getting hauled up by the regulator. These are smart people at Bajaj, I'm sure they'll not just fix the issue that was raised by the RBI six months ago, but more generally figure out how to do tech -related lending, tech -based lending without falling on the wrong side of the regulator.

50:18I think that's the main regulatory interface, I would say, worries us as an investor with regards to Majaj Finance. When something is moving so fast, it's hard to contain it. And many times it's after the fact, or it's a constant back and forth and checks and balances system. And I think just on that, what I can see the regulators deliberately focusing on the fast growing lenders, because regulators saying, I've only got so much bandwidth. If you're a big lender and growing fast, I'm going to spend a lot of time looking at what you're doing. And that's where I think the flashpoints are potentially will occur in the years to come.

50:50Seems like a reasonable strategy as well, from a regulatory standpoint, focus your time on where there is the most impact. I think you've outlined the growth pockets well throughout the conversation. But if you were to summarize a five -year, 10 -year outlook in terms of whether it's growth in certain business lines or just general market opportunities, how would you summarize those? So let me just give you the overall growth number. The Indian economy is growing at around 12%. I reckon credit outstanding in the country will grow at roughly 15 % for the next decade or so. Remember, Bajaj Finance's share is 1 .5 % of that credit pie.

51:28So I don't see why they shouldn't be able to grow at close to 25%, lower than their long -term norm of 30. But I think 25 % is a very respectable number. I reckon they'll become 10x their size in 10 years. Now, where will they find that growth? There are still several chunky niches in Indian lending where Bajaj has no presence as yet. So for example, gold loan finance. After China, we are the largest buyers of gold in the world. Something like, I would say, 10 % of Indian families' balance sheet will be gold. Indian families probably own the best part of a trillion dollars of gold. And financing based on gold is a big industry.

52:05Bajaj should get its fair share of that. Similarly, tractor finance. 60 % of the Indian population lives on the farm. They need to make agriculture more productive, to feed more mouths. Tractor finance, therefore, becomes a natural area of growth. So, in filling in these niches where they historically haven't participated, plus growing home loans and corporate loans and consumer durable loans should give them 25 % loan growth. Alongside that, the digital lending piece kicks in. We discussed, you raised the question as to how meaningful is digital lending. I don't think it's particularly meaningful so far, but those app downloads are soon going to push towards the 100 million mark.

52:39I'm pretty sure they'll go through 100 million app downloads in the next couple of years. As that happens, I think the digital lending piece takes off. That again becomes a spur to their growth. And the last pieces, that payment app and the use of that payment app for data mining. So roughly 25 million people use the Bajaj Finance payment app. Now just imagine the ton of data that Bajaj is getting. Now where is this guy going? How much is he spending on hotels, on e -commerce, on restaurants, clothes? What sort of customer is it? How can I profile them, right? That's just a mine of data that will get transferred into lending.

53:12So this company's ability to take modern technology, marry it with India's needs, and generate loan growth without high credit costs is the core engine. And I think the next 10 years bode well for this firm. On the other side of the spectrum, you talked about the regulatory risks. Are there other risks that stand out to you for this business? I think the main risk that worries us beyond the regulatory risk, the main risk that worries us is Rajiv Jain. And he's a Superman figure for Bajaj Finance, but he is 56 years old. I think he works a 12 -hour day quite comfortably at the moment. He probably does a 70 -hour week.

53:47He's 56 years old. I think three to five years hence, he will probably move into a non -exec role. They have identified the successor. We've met him. He's very capable. He's been at Bajaj Finance for a long period of time. He speaks a lot like Rajiv. I won't give his name away, but the successor is in a way a Rajiv clone. But I do worry about the succession because Rajiv's been an exceptional CEO and he'll be a hard act to follow. The other aspect, right, is as you get bigger and you start going into these niches such as, say, tractor finance and gold finance, there is a risk that you go into areas which are politically sensitive.

54:19So gold finance can be as little as $300, $400. And you're going into stratas of Indian society where lower middle class people are involved. And we are a democracy. And a natural way for politicians to cultivate publicity, cultivate favor with voters is to say, I now announce a loan waiver. How long before Bajaj Finance enters politically tricky areas where powerful people will be incentivized to announce loan waivers? I worry about that. At the moment, those risks seem far away, but for investors like us, the job is to worry about risks that others can't see. And Rajiv Jain, Reserve Bank of India, and the interplay of Bajaj Finance's burgeoning growth with India's lower income strata is something that we're keeping a careful eye on.

55:01This has been an incredible conversation just in the sense that we've gotten a lot on BFL, but also just the economic dynamics in India, which is always great to learn about, both the macro and the micro. You know, we closed these episodes out talking about the lessons that you can take away from this business. What would you point to in terms of lessons from Bajaj? So let me do one financial lesson around money and how compounding works and one non -financial lesson. The compounding lesson that I learned, and I literally learned this live watching this company compound 1000x over 16 years is if you're able to raise money at eight times price so bajaj has raised money four times in the last decade at eight times price to book basically getting very cheap funding from your shareholders if you then take that money that you're getting you're getting cheap equity from shareholders at an incredibly high valuation and you're reinvesting that at 22 percent roe you are moving that flywheel really fast that virtuous cycle raise money at very low cost of equity, generate very high ROE in that and keep spinning that wheel faster and faster.

56:04I'd read about it theoretically in William Thorndike's Outsiders. I see it in motion in Bajaj Finance. I think that's the real secret to the 32 % book value per share CAGR that this company's given in the last decade. On the non -financial lesson, I remember meeting Sanjeev Bajaj six years ago. You know, we were sitting in his office and I asked him, why don't you do lots of other things, other Indian conglomerates do a range of things. They get into real estate, they get into telecom, they get into IT services. Why don't you do that? So Sanjeev said something which has stayed with me. He said that, look, there's only so many hours in a day and I don't want to do dozens of different businesses like the Tatas or the Mahindras do.

56:41I want to focus on building scale and excellence in a couple of areas where I think I can make a difference. And he said, I focus on three things. And the three things that Sanjeev Bajaj focuses on are disruptive innovation, excellence alongside scale, and long -term sustained profitability. And he said, I'll only enter those businesses sort of where I can pull off those three things, disruptive innovation, excellence alongside scale, and long -term sustainable profitability. And as my colleagues and I try to build Marsalis, those three things keep sort of spinning through my head that don't do anything where you can't hit those three bullets straight off the bat.

57:15And I know one of the reasons I think the business has been so successful is while Rajiv has manned the engine room and navigated Bajaj Finance, Sanjeev has provided the owners, We call it in India, the promoters clarity of thought that, look, this is what we're going to do. We're in it for the long haul and we're not going to spray capital about in 20 different directions. I think that's a big learning for me. Focus your time and attention on a few things rather than trying to do plenty of things. Yes, I think I was alluding to the focus point and you put it in great terms there, great perspective there.

57:44Both of those lessons are excellent. Saurabh, thank you so much for joining us. Appreciate you coming back for a round two. Thank you, Matt. And if I don't mind my saying so at the parting, my employer, Marcellus, has Bajaj Finance in his portfolio. I'm a client of Marcellus. So are my parents. So by default, therefore, all of us in the family have a beneficial interest in Bajaj Finance. Thank you so much for giving me an opportunity to articulate that beneficial interest. Absolutely. Appreciate you adding that additional disclaimer there. Thank you very much. Hope to have you back again for round three.

58:15Thank you very much. Looking forward to that. To find more episodes of Breakdowns ranging from Costco to Visa to Moderna, or to sign up for our weekly summary, check out joincolossus .com. That's J -O -I -N -C -O -L -O -S -S -U -S dot com.