Company Update
October 10, 2016
Rating matrix
Rating
Target
Target Period
Potential Upside
Bajaj Finserv (BAFINS)
Buy
| 3470
12 months
11%
Healthy fundamentals; positive bias continues
Whats Changed?
Target
EPS FY17E
EPS FY18E
EPS FY19E
Rating
Changed from | 2900 to | 3470
Unchanged
Unchanged
Introducing at | 242.3
Unchanged
Key Financials
| Crore
Revenue
PBT
Net Profit
EPS (|)
FY16E
20,696.0
3,836.1
1,869.4
117.5
FY17E
23,569.8
4,641.7
2,377.3
149.4
FY18E
27,249.2
5,837.1
3,144.8
197.6
FY19E
32,399.3
7,275.3
3,855.5
242.3
Valuation summary
FY16E
26.6
29.5
3.9
4.3
15.7
1.9
P/E
Target P/E
P/ABV
Target P/ABV
RoE
RoA
FY17E
20.9
23.2
3.3
3.6
17.0
2.1
FY18E
15.8
17.6
2.7
3.0
18.8
2.3
FY19E
12.9
14.3
2.3
2.5
19.1
2.4
Stock data
Particular
Market Capitalization
Net worth
52 week H/L (|)
Equity capital
Face value
DII Holding (%)
FII Holding (%)
Amount
| 41676 crore
|12752 crore
2781/1575
| 80 Crore
|5
7.9
7.8
Price chart
3,500
10,000
3,000
8,500
2,500
2,000
7,000
1,500
5,500
1,000
BJFIN IN Equity
Oct-16
Jun-16
Aug-16
Mar-16
Jan-16
Nov-15
Jul-15
Sep-15
Mar-15
May-15
Oct-14
500
Dec-14
4,000
| 3130
Bajaj Finserv is a financial conglomerate that is engaged in life insurance,
general insurance, consumer finance and other financial products. The
company has 74% stake in two insurance companies viz. Bajaj Allianz Life
Insurance Company (BALIC) and Bajaj Allianz General Insurance Company
(BAGIC) and 57.6% stake in Bajaj Finance. Led by strong growth in
advances, the finance business reported consistent earnings growth. In the
insurance business, general insurance has been the most profitable and
efficient player in industry. However, BALICs growth has been relatively
slower owing to regulatory overhang related to Ulip. Now, it offers huge
potential with guidelines in place and recent high valuation of life
insurance peers at more than 3x of their embedded value.
Going ahead, we remain positive on the fundamentals led by 1) sustained
performance of Bajaj Finance and 2) potential upside from the resolution of
ownership of the insurance business. Therefore, based on SOTP valuation,
we have revised our target price to | 3470/share (| 2900 earlier) for Bajaj
Finserv, as we roll over to FY19E EPS, which implies a multiple of 12.9x on
FY19E consolidated earnings. We maintain BUY rating on the stock.
Healthy growth momentum in finance segment to boost earnings
Bajaj Finance, with a distinguished business model in the consumer
durables portfolio, has consistently delivered healthy loan growth of more
than 30% in the past five years. Despite a weak economic environment,
asset quality has been maintained along with sustained margin of ~10%
due to higher IRR in products. We expect the earnings momentum to
remain healthy ahead owing to; 1) business strategy to enlarge geography,
product lines and market, and 2) efficient risk management enabling
control over asset quality. Consequently, PAT contribution that has surged
to 42% (from 25% earlier) is expected to stay significantly higher ahead.
With anticipation of consistent healthy credit growth and prudent asset
quality, we expect PAT growth to remain strong at 35% CAGR in FY17-19E
to | 3114 crore. Accordingly, we value the finance business at ~| 70000
crore (from ~| 55000 earlier) based on 22.5x FY19E EPS.
Insurance business clarity on shareholding to drive valuation
As per past agreed terms, Allianz had a Call option to increase its stake in
insurance businesses at pre-agreed price until April 2016. However, RBIs
ruling in 2010 and subsequent directive by insurance regulator mandating
all stake transactions in Indian insurance industry to be carried out at a fair
value or prevailing market value led to uncertainty on ownership. Allianz
can now either increase its stake in the insurance business at fair value
(much higher than pre-agreed price) or divest its holding in insurance
business, both of which offer upside accretion for shareholders.
Exhibit 1: Valuation on SOTP basis (FY19E)
NIFTY Index
Research Analyst
Kajal Gandhi
[email protected]
Vishal Narnolia
[email protected]
Vasant Lohiya
[email protected]
ICICI Securities Ltd | Retail Equity Research
Business
Bajaj Allianz Life Insurance
Bajaj Allianz General Insurance
Bajaj Finance
Windmill
Total
Source: ICICIdirect.com Research
Basis
1.35x EV + 10x NBAP
16x PAT
22.5x EPS
|6 per mw
Stake (%)
74
74
57.28
100
Value of
Value/
Business stake (|
share after 15%
Value
crore)
discount (|)
20190
14919
797
12703
9400
502
70097
40152
2145
410
410
26
3470
Financial summary
Profit and loss statement
(Year-end March)
Revenue
Life Insurance
General Insurance
Total
Less: Reinsurance ceded
Reserve for unexpired risk
Net Insurance Premium Earned
Investment and other income
Total Insurance Income
Investment and others
Retail financing
Windmill
Total
Less: Inter-segment revenue
Total revenue
Pre-tax profit
General Insurance
Life Insurance
Total Insurance
Retail financing
Investments & others
Windmill
Total PBIT
Less: Interest
Profit before tax
Tax
Net profit before minority
Minority and deferred tax adjustments
Net profit
| Crore
FY16E
FY17E
FY18E
FY19E
5896
5901
11796
1351
348
10097.2
2935
13032
307
7382
57
20778
82
20696
6075
6668
12743
1716
233
10793.4
2813.5
13607.0
321.9
9655.3
68.8
23652.9
83.1
23570
6453
7568
14021
1870
227
11923.8
2500.5
14424.3
338.0
12491.7
79.1
27333.1
83.9
27249
7079
8703
15782
2143
261
13377.7
2622.3
16000.0
354.9
16038.2
91.0
32484.1
84.8
32399
771
983
1754
1964
86
32
3836
86
3836
-1052
2784
915
1869
910
1013
1923
2567
113
39
4642
113
4642
-1270
3372
995
2377
992
1114
2106
3568
118
45
5837
118
5837
-1376
4461
1316
3145
1134
1226
2360
4739
124
52
7275
124
7275
-1807
5469
1613
3855
(Year-end March)
CMP
No. of shares in mn
EPS
BV
RoA
RoE
P/BV
P/E
FY16E
3129.0
159.1
117.5
805.3
1.9
15.7
3.9
26.6
FY17E
3129.0
159.1
149.4
953.0
2.1
17.0
3.3
20.9
FY18E
3129.0
159.1
197.6
1148.9
2.3
18.8
2.7
15.8
FY19E
3129.0
159.1
242.3
1389.4
2.4
19.1
2.3
12.9
(Year-end March) - Growth ratios
Gross Written Premium
- Life
- General
Loan book Bajaj Finance
Consol Networth
Consol Revenues
Consol PAT
FY16E
FY17E
FY18E
FY19E
-2.0
11.3
37
17
15
11
3.0
13.0
32
18
14
27
6.2
13.5
32
21
16
32
9.7
15.0
31
21
19
23
Balance sheet
| Crore
(Year-end March)
Sources of Funds
Shareholders' Funds
- Share capital
- Reserves & Surplus
Policy liabilities
Provision for linked liabilities
Funds for future appropriation in policyholders' account
Minority interest
Loan funds
Defered tax liability (net)
Current liabilities
Provisions
Total liabilities
FY16E
FY17E
FY18E
FY19E
1281
80
12735
17026
21449
341
5176
37024
11
13603
195
107639
1516
80
15085
19104
20332
358
6171
47965
11
14215
203
123524
1828
80
18201
16327
24490
376
7486
62371
11
14855
211
144409
2211
80
22029
16980
25470
395
9100
80946
12
15523
219
170754
Applications of Funds
Fixed assets
Goodwill on investments in associates
Investments
Policyholders' Investments
Assets held to cover linked liabilities
Deferred Tax Assets (net)
Current assets
- Receivable under financing activity
Misc Expenditure
Total Assets
1443
429
16623
16685
21449
198
8056
42756
0
107639
1509
429
18581
18722
20332
207
7304
56438
0
123524
1616
429
19800
20032
21713
218
6271
74329
0
144409
1701
429
21320
21443
23345
229
4915
97371
0
170754
Source: Company, ICICIdirect.com Research
Source: Company, ICICIdirect.com Research
Key Ratio
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 2
ICICIdirect.com coverage universe (NBFC)
Sector / Company
LIC Housing Finance (LICHF)
Reliance Capital (RELCAP)
HDFC (HDFC)
PTC India Financial Services
(PTCIND)
CARE (CARE)
Bajaj Finserv (BAFINS)
Bajaj Finance (BAJAF)
CMP
(|)
598
581
1,389
TP(|) Rating
550 Hold
498 Hold
1,530
Buy
39
39
Hold
1,551
3,129
1,083
1,400
3,470
1,060
Buy
Buy
Buy
EPS (|)
P/E (x)
P/ABV (x)
RoA (%)
RoE (%)
M Cap
(| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E
30,233 32.9 39.3 46.4 18.2 15.2 12.9
3.4
2.8
2.3
1.4
1.4
1.5 19.6 19.6 19.1
14,275 43.2 42.1 46.1 13.4 13.8 12.6
1.1
1.0
1.0
1.8
1.5
1.5
7.5
6.6
6.9
219,178 45.0 46.7 53.4 30.9 29.7 26.0
6.5
5.9
5.3
2.6
2.4
2.4 21.8 20.6 21.3
2,220
2.9
7.0
4.6
13.6
5.6
8.5
1.5
1.3
1.2
2.6
5.0
2.9
11.5
24.9
14.5
4,497 48.4 40.0 46.0
49,826 117.5 149.4 197.6
57,812 24.6 31.6 43.5
32.1
26.6
44.0
38.8
20.9
34.3
33.8
15.8
24.9
12.5
3.9
7.6
11.2
3.3
6.5
10.4
2.7
5.2
43.2
1.9
3.2
40.9
2.1
3.2
43.5
2.3
3.4
38.9
15.7
21.0
28.8
17.0
20.9
30.8
18.8
23.4
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 3
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head Research
[email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
[email protected]ICICI Securities Ltd | Retail Equity Research
Page 4
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report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
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Page 5
