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Revival in finance segment; 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

Q3FY22 Results: Robust pick up in lending business; insurance remains slow.

* Consolidated revenue grew ~10.4% YoY; PAT declined 2.6% YoY

* AUM up 26% YoY to | 181250 crore; PAT up 85% YoY led by low provision

* GWP declined 13% YoY to | 2959 crore; PAT steady YoY at | 304 crore

* Robust growth at 30% YoY in life premium; high opex impacted PAT

What should investors do? Bajaj Finserv’s share price has grown by ~5.2x over the past five years (from ~| 3170 in January 2017 to | 16333 in January 2022).

* We maintain our BUY rating on the stock

Target Price and Valuation: Rolling valuation to FY24E and increasing discount to 15%, we value Finserv at ~39x FY24E EPS and assign target price at | 20000/ share.

Key triggers for future price performance:

* Lending on cusp of accelerated growth aiding earnings momentum ahead

* Agility to switch from online to offline model to propel valuations

* Product launch & selective product mix to aid premium growth & earnings in life & general insurance business

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

Alternate Stock Idea: Apart from BAF, in BFSI our coverage we also like HDFC Ltd.

* HDFC Ltd is a leading housing finance company with loan size of ~| 5 lakh crore with presence in life insurance, banking, AMC via its subsidiaries

* BUY with target price of | 3350

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