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Healthy quarter; growth outlook stays optimistic…

About the stock: Bajaj Finserv (Finserv) is a financial conglomerate with a holding in the financing business (Bajaj Finance), life insurance (Bajaj Life Insurance) and general insurance (Bajaj General Insurance) business.

* Consistent, faster business growth and profitability remains in focus

Q1FY23 Results: Pick-up in lending AUM & premium accretion aided top line

* Consolidated revenue grew ~14% YoY; PAT up 57% YoY

* AUM up 28% YoY to | 204018 crore; PAT jump led by lower provision

* GWP declined 25% YoY to | 3119 crore; PAT up at | 411 crore

* Robust growth at 74% YoY in life premium; PAT up 48% YoY to | 124 crore

What should investors do? Bajaj Finserv’s share price has grown by over~3x in the past five years (from ~Rs 5308 in August 2017 to Rs 15007 in July 2022).

* We maintain our BUY rating on the stock

Target Price and Valuation: Pick-up in lending AUM, and anticipated healthy growth in insurance segment coupled with focus on digitization remains positive. We value Finserv at ~31x FY24E EPS and lower our target price from Rs 18900 earlier to Rs 17600/share

Key triggers for future price performance:

* Digital transformation, client additions and ambitious targets on AUM growth (25-27% CAGR to Rs 3.8 – 4 lakh crore by FY25) to boost profitability

* Product launch and selective product mix to aid premium growth; focuss on claims and opex to aid earnings in life and general insurance business

* Healthy traction in all businesses to drive consolidated revenue & earnings

Alternate Stock Idea: Besides Finserv, in BFSI our coverage we also like HDFC Ltd.

* HDFC Ltd is a leading housing finance company with loan size of ~Rs 5.7 lakh crore with a presence in life insurance, banking, AMC via its subsidiaries

* BUY with a target price of Rs 2800

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