Académique Documents
Professionnel Documents
Culture Documents
February 5, 2016
Rating matrix
Rating
Target
Target Period
Potential Upside
Buy
| 2308
12 months
21%
Whats Changed?
Unchanged
Changed from | 129.2 to | 118.8
Changed from | 160.3 to | 148.0
Unchanged
Target
EPS FY16E
EPS FY17E
Rating
Quarterly Performance
| Crore
Income from oper.
Total expenditure
PBT
Tax + Minority
PAT
Key Financials
| Crore
Revenue
PBT
Net Profit
EPS (|)
FY14
15,537.7
2,905.0
1,547.7
97.3
FY15
18,051.1
3,246.2
1,689.8
106.2
FY16E
20,645.8
3,796.3
1,890.9
118.8
FY17E
23,466.3
4,587.3
2,354.8
148.0
Valuation summary
P/E
Target P/E
P/ABV
Target P/ABV
RoE
RoA
FY14
19.6
23.7
3.3
3.9
18.1
2.2
FY15E
18.0
21.7
2.8
3.3
16.7
2.0
FY16E
16.1
19.4
2.4
2.9
15.9
1.9
FY17E
12.9
15.6
2.0
2.4
16.8
2.0
Stock data
Particular
Market Capitalization
Net worth
52 week H/L (|)
Equity capital
Face value
DII Holding (%)
FII Holding (%)
Amount
| 30290 crore
|12472 crore
2160/1250
| 80 Crore
|5
7.9
7.8
1M
(4.0)
(4.0)
(26.7)
3M
(3.8)
(4.2)
(20.3)
6M
(7.2)
(10.3)
(15.8)
| 1909
12M
27.8
(5.2)
(31.8)
Research Analyst
Kajal Gandhi
kajal.gandhi@icicisecurities.com
Vishal Narnolia
vishal.narnolia@icicisecurities.com
Vasant Lohiya
vasant.lohiya@icicisecurities.com
Variance analysis
Q3FY16
1348.4
Q3FY16E
1,301.4
Q3FY15
1,183.1
YoY (%)
14.0
Q2FY16
1,500.2
QoQ (%)
-10.1
Life Insurance
Net premium earned
Investment and other income
Reinsurance Ceded
Reserve for unexpired risk
Total Insurance
1225.2
1225.2
708.3
244.5
82.2
2955.2
1,226
1,225.6
776
286
35
2,981.5
1,441.9
1,441.9
645
256
-13
3,027.2
-15.0
-15.0
9.8
-4.5
-713.9
-2.4
1,172
1,171.9
750
382
74
2,966.4
4.6
4.6
-5.5
-35.9
11.3
-0.4
Retail financing
Windmill
Investment and others
Total
Interest and Finance Charges
Other Exp
Total Expenses
PBT
2069.7
10.4
53.8
5069.2
733.8
3381.3
4115.0
954.2
2,070
10.0
59
5,107
664.6
3,473.4
4,138.0
969.3
1,486
9.9
49
4,560
587.5
3,224.1
3,811.6
748.0
39.3
5.0
9.3
11.2
24.9
4.9
8.0
27.6
1,701
23.1
103
4,730
689.0
3,143.0
3,832.1
897.8
21.7
-55.2
-47.7
7.2
6.5
7.6
7.4
6.3
PAT
437.3
Source: Company, ICICIdirect.com Research
494.9
347.4
25.9
441.1
-0.9
General Insurance
Comments
General insurance premium remained on steady growth path
De-growth in renewal and new business premium impacted premium
growth; as expected during the quarter
Change in estimates
(| Crore)
Old
Total Income
20,325.1
PBT
3,915.3
PAT
2,055.5
ABV (|)
817.0
Source: Company, ICICIdirect.com Research
FY16E
New
20,588.9
3,899.2
2,024.3
815.1
% Change
1.3
-0.4
-1.5
-0.2
Old
22,995.5
4,663.3
2,550.8
975.6
FY17E
New
23,367.3
5,111.3
2,826.4
991.0
% Change
1.6
9.6
10.8
1.6
Earlier
FY16E
31.5
3.3
13.0
FY17E
27.0
5.8
14.5
Assumptions
FY14
Commercial Finance growth (%)
37.2
Life Ins Premium growth (%)
-15.2
General Ins GWP growth (%)
11.5
Source: Company, ICICIdirect.com Research
FY15
35.8
3.0
15.6
Current
FY16E
FY17E
40.0
29.0
-0.8
5.3
12.5
14.0
Page 2
Company Analysis
Business interests
Bajaj Finserv is a financial conglomerate engaged in life insurance, general
insurance, consumer finance and other financial products. Apart from
financial services, the company has an operational wind energy asset. The
portfolio of the company includes 74% in the two insurance companies
viz. Bajaj Allianz Life Insurance Company (BALIC) and Bajaj Allianz General
Insurance Company (BAGIC), 50% holding in Bajaj Allianz Financial
Distributors, 57.6% in Bajaj Finance and 100% holding in Bajaj Financial
Solutions.
Consolidated revenues grew at 5% CAGR in FY10-15 from | 13997 crore to
| 18030 crore. Within the same, the contribution of insurance was 54%
while that of Bajaj Finance was 30% in FY15. Improving profitability from
the life insurance segment, compared to loss in FY08 of | 213 crore to PBT
of | 1349 crore in FY12, led PBT to grow at 31.3% CAGR in FY10-15 to
| 3246 crore. With new IRDA guidelines, from FY13, the life insurance
segment deteriorated while the Bajaj Finance business, which picked up
from FY11 (10x rise in PBT from | 38 crore to | 310 crore) started
contributing higher proportion to PBT. General insurance also normalised
from FY13. Going ahead, we estimate consolidated revenues will grow at
14% CAGR in FY15-17E to | 23466 crore. The bottomline is seen growing
at ~18% CAGR in FY15-17E to | 2355 crore.
Strong traction in commercial finance boosted the topline. Continued weak
performance in life and general insurance business and incremental claims
in general insurance owing to Chennai floods impacted profitability, which
was at the lowest level of the current fiscal at | 437 crore in Q3FY16.
Exhibit 1: Consolidated profit summary
Particulars
General Insurance
Life Insurance
Total Insurance
Investments & others
Windmill
Retail financing
Less: Inter-segment revenue
Total revenue
Interest and Finance Charges
Other Exp
Total Expenses
PBT
PAT
Q3FY14
1074
1385
2787
35
10
1082
6
3909
406
2919
3325
584
284
Q4FY14
1268
2140
3577
42
1
1095
7
4708
445
3057
3502
1206
708
Q1FY15
1177
795
2295
42
14
1246
7
3590
495
2437
2931
658
319
Q2FY15
1475
1401
2929
87
20
1242
51
4227
544
3043
3588
639
316
Q3FY15
1183
1442
3027
49
10
1486
12
4560
588
3224
3812
748
347
Q4FY15
1465
2379
4134
100
7
1445
11
5675
603
3872
4474
1201
707
Q1FY16
1322
1082
2773
59
14
1656
15
4487
665
2897
3562
925
467
Q2FY16
1500
1172
2966
103
23
1701
63
4730
689
3143
3832
898
441
Q3FY16
1348
1225
2955
54
10
2070
20
5069
734
3381
4115
954
437
Page 3
0.5
10.8
0.8
10.2
1.0
10.3
1.5
9.7
1.7
10.0
2.7
11.0
49.2
47.2
48.0
46.8
46.9
44.1
39.5
41.8
40.7
42.0
41.3
42.3
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
(%)
80.0
60.0
40.0
20.0
0.0
Consumer Finance
SME Business
Commercial
Rural
Q3FY14
618
547
298
79
295
22461
Q4FY14
553
584
306
62
277
24061
Q1FY15
680
558
343
83
321
26943
Q2FY15
626
564
319
80
299
28004
Q3FY15
824
561
392
108
393
30822
Q4FY15
741
584
375
114
345
32410
Q1FY16
895
576
453
103
422
35557
Q2FY16
897
601
441
137
428
37964
Q3FY16
1222
590
549
147
625
43452
Bajaj Allianz Life Insurance (BALIC), a 74:26 JV between Bajaj Finserv and
Allianz SE recorded its first profit since FY10 of | 542 crore. The company
is now earning higher PAT of | 876 crore, after touching peaks of | 1311
crore. First year new business premium (NBP) growth has been under
pressure from FY09 onwards due to a slowing economy while declining
traction in Ulip from FY10 further impacted total premiums, to reach | 5844
crore in FY14 from over | 10600 crore in FY09. Going ahead, we expect
the life insurance business to remain on a slower track with share of
individual business improving gradually post FY17E. Hence, we expect the
premium to grow at 2.2% CAGR to | 6283 crore in FY15-17E.
Page 4
The life insurance business Q3FY16 GWP declined 15% YoY to | 1225
crore as new business premium dipped 6% YoY to | 538 crore and
renewal de-grew 21% YoY to | 687 crore. PAT was at | 191 crore; up 9%
YoY.
We factor in an improvement in the scenario with linked NBP from
individual growing at 12.1% CAGR to | 3088 crore and APE seen growing
at 17.0% CAGR (on lower base) to | 1897 crore over FY15-17E.
Gross written premium (GWP) has de-grown at 20% CAGR from FY12-15
to | 6017 crore, on account of a decline in linked premium led by
surrenders. BALICs linked premium share in total premium declined from
highs of 94% in FY09 (| 9986 crore) to 29% (| 1746 crore) in FY15. On an
NBP basis, it has declined from 99% to 19% in FY15. Regulatory changes
in September 2010 along with a market correction led to an increase in
surrenders from | 4464 crore in FY11 to | 7250 crore in FY14. Accordingly,
AUM declined from | 32880 crore in FY11 to | 21287 crore in FY14. Going
ahead, an anticipated increase in AUM will assist interest income while
lower surrenders will boost persistency ratios. Therefore, after witnessing
a decline in PAT from FY13 to FY15 due to declining AUM, we expect PAT
to remain in positive territory ahead. However, based on subdued growth
in new business and renewal premium in 9MFY16 and anticipation of
slower traction in near term, we have revised our PAT growth estimate
downward at 6.4% CAGR in FY15-17E to | 932 crore (from our previous
estimate of |1110 crore) with AUM growth at 11.5% CAGR over FY15-17E.
Exhibit 4: Life insurance premium (NBP)
13
11.8
11.3
11
(| Billion)
9
7
8.2
6.5
6.7
6.6
6.8
6.1
4.4
6.7
5.7
4.6
3.9
5.4
Q3FY16
Q2FY16
Q1FY16
Q4FY15
Q3FY15
Q2FY15
Q1FY15
Q4FY14
Q3FY14
Q2FY14
Q1FY14
Q4FY13
Q3FY13
Q2FY13
Page 5
Q3FY14
1385
678
707
183
115
298
733
Q4FY14
2140
817
1323
49
639
688
734
Q1FY15
796
394
402
115
0
115
785
Q2FY15
1401
610
791
140
103
243
802
Q3FY15
1442
572
870
76
99
175
782
Q4FY15
2379
1127
1252
71
488
559
761
Q1FY16
1082
674
408
142
99
241
788
Q2FY16
1172
460
712
151
65
216
809
Q3FY16
1225
538
687
49
142
191
797
Others,
12%
Health, 13%
Motor, 64%
BAGIC has consistently grown over the last decade with gross direct
premium (GWP) growing at 18.2% CAGR in FY05-14, surpassing industry
growth of 15.1% during the same period. In FY15, BAGIC had GWP of
| 5230 crore, growing at 14% YoY compared to 10.1% for industry and
9.7% for private players. The primary focus of the company is on the retail
segment with motor and health insurance forming a major pie contributing
~77% of overall business. Motor continues to form 65% of business mix.
With prudent underwriting practices and focus on preserving profitability,
BAGIC was able to report steady improvement in combined ratio from
111% in FY11 to 98% in FY15, which led to underwriting profits of | 83
crore in FY15. Also, provision due to third party motor pool claims and
exceptional provisioning for Motor Decline Risk pool has been fully taken
in FY14. This had impacted FY12 and FY13 profitability leading to losses
(| 240 crore of transitional liability).
GWP growth remained steady in Q3FY16 at 14% YoY to | 1348 crore.
However, profitability was impacted in Q3FY16 due to under-writing losses
of | 116 crore, related to claims due to Chennai floods that led to a spike in
claims ratio at 77.3% from 70.0% in Q3FY15. Consequently, PBT came in
at | 95 crore vs. | 205 crore YoY. Going ahead, we expect NEP and PAT to
grow at 14.2% and 8.8% CAGR to | 4997 crore and | 665 crore,
respectively.
Page 6
Q3FY14
1074
899
-13
149
136
95
72
101
Q4FY14
1268
897
-13
157
144
101
76
99
Q1FY15
1177
921
24
158
182
130
72
97
Q2FY15
1475
953
23
170
193
145
75
96
Q3FY15
1183
958
16
189
205
143
70
99
Q4FY15
1465
1000
20
177
197
144
71
95
| crore
Q1FY16
1322
999
28
186
214
147
68
96
Q2FY16
1500
1061
-8
213
205
141
73
99
Page 7
Q3FY16
1348
1037
-116
211
95
68
77
109
Business
Bajaj Allianz Life Insurance
Bajaj Allianz General Insurance
Bajaj Finance
Windmill
Total
Basis
1.4x EV + 10x NBAP
17x PAT
3.7x BV
|6 per mw
Stake (%)
74
74
57.8
100
Value of
Value/
Business stake (|
share after 10%
Value
crore)
discount (|)
18356
13563
767
11496
8507
481
31672
18306
1035
390
390
25
2308
FY12
1,338.0
92.5
10.1
20.6
5.4
2.4
30.3
FY13
1,572.4
98.8
6.9
19.3
3.9
2.5
24.4
FY14
1,547.7
97.3
(1.6)
19.6
3.3
2.2
18.1
FY15
1,689.8
106.2
9.2
18.0
2.8
2.0
16.7
FY16E
1,890.9
118.8
11.9
16.1
2.4
1.9
15.9
Page 8
FY17E
2,354.8
148.0
24.5
12.9
2.0
2.0
16.8
Company snapshot
2,500
Target price: | 2308
2,000
1,500
1,000
500
Nov-15
Jun-15
Jan-15
Aug-14
Mar-14
Oct-13
May-13
Dec-12
Jul-12
Feb-12
Sep-11
Apr-11
Nov-10
Jun-10
Jan-10
Aug-09
Mar-09
Oct-08
Key events
Date
FY07
FY07
FY08
Event
De-merger of erstwhile Bajaj Auto in 2007 and formation of Bajaj Finserv, the financial services arm of Bajaj Group
Induction of new management personnel from leading multinational companies
Diversification of lending portfolio begins vs. earlier legacy business of two & three wheeler financing and consumer durable financing
FY08
Launch of personal loan cross sell business and life insurance distribution business
FY10
FY11
FY14
FY15
Bajaj Allianz Life Insurance records its first profit of | 542 crore in FY10
General insurance business perofmance impacted by high motor claims. Construction equipment financing business launched
Introduction of new regulation by IRDA impacts life insurance profitability
General insurance business reports underwriting profit of | 83 crore
Top 10 Shareholders
R a nk
1
2
3
4
5
6
7
8
9
10
Name
B a ja j G roup of Industries
F irodia G roup of Industries
L ife Insura nce C orpora tion of India
IC IC I P rudentia l Asset Mana ge m e nt C o. L td.
S ikkim Janse va P ratistha n P vt. L td.
Ashoka P te. L td.
B a ja j (R a hulkum ar)
B a ja j (Nira j)
T he V a nguard G roup, Inc.
B a ja j (Ma dhur)
Shareholding Pattern
a te st F iling D ate
30-S e p-15
30-S e p-15
30-S e p-15
30-Jun-15
30-S e p-15
30-S e p-15
30-S e p-15
30-S e p-15
31-D ec-15
30-S e p-15
(in %)
Promoter
FII
DII
Others
Recent Activity
B uys
Inve stor na m e
D S P B la ckR ock Inve stm e nt Ma na ge rs P vt. L td.
Allia nce B e rnste in L .P .
B irla S un L ife Asse t Ma na ge m e nt C om pa ny L td.
S im plicity AB
D im e nsiona l F und Advisors, L .P .
V a lue
2.02m
1.28m
0.60m
0.28m
0.16m
S ha re s
0.07m
0.04m
0.02m
0.01m
0.01m
S e lls
Inve stor na m e
IC IC I P rude ntia l Asse t Ma na ge m e nt C o. L td.
L ife Insura nce C orpora tion of India
B a ja j (S he kha r P )
Ashoka P te . L td.
Me llon C a pita l Ma na ge m e nt C orpora tion
V a lue
-73.65m
-5.90m
-3.92m
-2.60m
-0.34m
S ha re s
-3.06m
-0.22m
-0.15m
-0.10m
-0.01m
Page 9
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
FY14
FY15
FY16E
FY17E
5843
6017
4584
5301
10427 11318
890
1361
268
177
9269.1 9779.8
2028.0 2605.5
11297.1 12385.2
188.6
278.7
4073.3 5418.3
44.2
50.3
15603.3 18132.5
65.5
81.5
15538 18051
5966
5963
11929
1419
298
10212
2855
13067
295
7308
57
20728
82
20646
6283
6798
13081
1689
238
11153.6
2409.4
13563.1
310.2
9610.8
65.4
23549.4
83.1
23466
589
1162
1751
1087
30
37
1087
30
2905
-710
2195
647
1548
777
1007
1784
1368
63
32
1368
63
3246
-837
2409
719
1690
722
1027
1749
1932
83
32
1932
83
3796
-1015
2781
890
1891
950
1071
2022
2420
109
37
2420
109
4587
-1247
3340
985
2355
FY14
1909.0
159.1
97.3
585.2
2.2
18.1
3.3
19.6
FY15
1909.0
159.1
106.2
689.6
2.0
16.7
2.8
18.0
FY16E
1909.0
159.1
118.8
806.7
1.9
15.9
2.4
16.1
FY17E
1909.0
159.1
148.0
952.9
2.0
16.8
2.0
12.9
FY14
FY15
FY16E
FY17E
-15.2
11.5
37
19
7
-2
3.0
15.6
36
18
16
9
-0.8
12.5
40
17
14
12
5.3
14.0
29
18
14
25
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
FY14
FY15
FY16E
FY17E
931
80
9232
11708
21288
184
3542
15773
10
12397
180
74393
1097
80
10894
14606
21645
124
4261
26691
11
13017
187
91515
1284
80
12757
17026
21488
341
5151
36539
11
13603
195
107190
1516
80
15084
19175
20302
358
6136
47074
11
14215
203
122636
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
835
429
11457
11536
21288
171
5707
22971
1034
74393
1404
429
14526
14438
21645
188
7686
31199
0
91515
1443
429
16653
16685
21488
198
6615
43679
0
107190
1509
429
18851
18791
20302
207
6202
56346
0
122636
Key Ratio
(Year-end March)
CMP
No. of shares in mn
EPS
BV
RoA
RoE
P/BV
P/E
(Year-end March) - Growth ratios
Gross Written Premium
- Life
- General
Loan book Bajaj Finance
Consol Networth
Consol Revenues
Consol PAT
Page 10
CMP
(|)
41
444
346
1,183
P/E (x)
P/ABV (x)
RoA (%)
RoE (%)
M Cap EPS (|)
TP(|) Rating (| Cr) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E
60 Buy
6,632 10.7
9.3 13.3
3.9
4.5
3.1
0.4
0.4
0.3
2.1
1.7
2.3 10.5
8.2 10.9
500 Hold 22,401 27.5 33.3 40.3 16.2 13.3 11.0
3.0
2.3
1.9
1.3
1.4
1.4 18.1 18.7 18.2
481 Buy
8,406 39.6 33.6 38.0
8.6 10.2
9.0
0.8
0.7
0.7
2.0
1.5
1.6
7.8
6.3
6.8
1,330 Buy 186,610 38.0 41.8 48.3 31.1 28.3 24.5
6.1
5.6
5.0
2.5
2.4
2.5 20.3 20.3 21.3
34
51
Buy
1,099
1,909
6,642
1,700
2,308
7,125
Buy
Buy
Buy
1,918
5.3
11.8
5.1
6.3
1.4
1.3
1.0
2.6
4.8
3.4
11.5
23.7
16.9
2.9
6.6
22.7
18.0
36.9
24.0
16.1
27.0
19.3
12.9
22.2
8.8
2.8
6.9
8.1
2.4
4.7
7.6
2.0
4.0
43.2
2.0
3.1
44.9
1.9
3.2
50.4
2.0
3.1
38.9
16.7
20.4
33.9
15.9
20.9
39.5
16.8
19.8
Page 11
RATING RATIONALE
Pankaj Pandey
Head Research
pankaj.pandey@icicisecurities.com
Page 12
ANALYST CERTIFICATION
We /I, Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research
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)
or view(s) in this report.
Page 13