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Bajaj Finserv (BJFIN)
Banks/Financial Institutions
Focusing on profitable growth. We believe that a robust insurance business and
expansion across segments of financial services will drive the business prospects of Bajaj
Finserv. A well-established life insurance business, rapidly growing lending business,
brand equity of the Bajaj group and strong financial capability are its key strengths. We
like the business though the current stock price captures most of the value. We initiate
coverage with an ADD rating and SOTP-based TP of Rs650/share.
SOTP-based valuation provides 15% potential upside
We initiate coverage on Bajaj Finserv with an SOTP-based target price of Rs650, i.e. 10X PER and
1.6X PBR FY2013E for 11% core earnings CAGR and about 16% RoE. Life insurance remains the
largest contributor (61%) followed by the rapidly growing NBFC—Bajaj Finance. Faster-thanexpected
growth in the lending business, turnaround in the general insurance industry and optimal
utilization of the surplus generated by the life insurance business will likely provide an upside to
our fair estimate. Bajaj Finserv proposes to enter into new businesses like financial distribution and
mutual fund, which will likely accrue value over time.
Group-wide focus on margins over market share
Bajaj Finserv has emerged as a diversified financial services company operating across the spectrum
of lending and protection. Its businesses have focused on developing a diversified and sustainable
business model with a clear preference for profitability over volume growth.
Resisting temptation to grow (in an unfavorable environment) over the past three years, Bajaj
Life is the first private company to coup its accumulated losses.
Diversification and transformation of new business strategy have taken Bajaj Finance to a high
profitability zone (RoE of 18-20%) and 23% PAT CAGR over the next three years.
The general insurance business will likely generate normalized RoE of 16-17% though nearterm
earnings will likely be subdued.
Key risks: Underperformance due to extreme caution, regulatory changes
(1) Consistent decline in growth rate in APE and low persistency in the life insurance business can
pull down embedded value; management’s proposed growth plans are hence positive. (2)
Changes in regulatory environment have affected the businesses of life and general insurance;
impending changes by RBI can affect the NBFC business. (3) Higher-than-expected losses in the
third-party motor pool can put more pressure on profitability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bajaj Finserv (BJFIN)
Banks/Financial Institutions
Focusing on profitable growth. We believe that a robust insurance business and
expansion across segments of financial services will drive the business prospects of Bajaj
Finserv. A well-established life insurance business, rapidly growing lending business,
brand equity of the Bajaj group and strong financial capability are its key strengths. We
like the business though the current stock price captures most of the value. We initiate
coverage with an ADD rating and SOTP-based TP of Rs650/share.
SOTP-based valuation provides 15% potential upside
We initiate coverage on Bajaj Finserv with an SOTP-based target price of Rs650, i.e. 10X PER and
1.6X PBR FY2013E for 11% core earnings CAGR and about 16% RoE. Life insurance remains the
largest contributor (61%) followed by the rapidly growing NBFC—Bajaj Finance. Faster-thanexpected
growth in the lending business, turnaround in the general insurance industry and optimal
utilization of the surplus generated by the life insurance business will likely provide an upside to
our fair estimate. Bajaj Finserv proposes to enter into new businesses like financial distribution and
mutual fund, which will likely accrue value over time.
Group-wide focus on margins over market share
Bajaj Finserv has emerged as a diversified financial services company operating across the spectrum
of lending and protection. Its businesses have focused on developing a diversified and sustainable
business model with a clear preference for profitability over volume growth.
Resisting temptation to grow (in an unfavorable environment) over the past three years, Bajaj
Life is the first private company to coup its accumulated losses.
Diversification and transformation of new business strategy have taken Bajaj Finance to a high
profitability zone (RoE of 18-20%) and 23% PAT CAGR over the next three years.
The general insurance business will likely generate normalized RoE of 16-17% though nearterm
earnings will likely be subdued.
Key risks: Underperformance due to extreme caution, regulatory changes
(1) Consistent decline in growth rate in APE and low persistency in the life insurance business can
pull down embedded value; management’s proposed growth plans are hence positive. (2)
Changes in regulatory environment have affected the businesses of life and general insurance;
impending changes by RBI can affect the NBFC business. (3) Higher-than-expected losses in the
third-party motor pool can put more pressure on profitability.
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