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Improving prospects of key subsidiaries to add value

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.

Rationale: Traction in insurance and digitisation in lending, a long term positive.

* Bajaj Finance launched the wallet business in July 2021 and aims to onboard ~2.5 crore customers by FY23

* Premium growth in general insurance at 20% for April-July21 aids market share gain of 30 bps to 7.9%

* Life insurance premium jumped 40% YoY for April-July21 ahead of industry

* Foray into mutual fund business would add value to overall franchisee

What should investors do?

Bajaj Finserv’s share price has grown by ~6x over the past five years (from ~| 2900 in September 2016 to | 17500 in September 2021).

* We upgrade our rating on the stock from HOLD to BUY

Target Price and Valuation: We value Finserv at ~45x FY23 EPS to arrive at revised TP of |20200 per share from |13500 earlier.

Key triggers for future price performance:

* Expect 20%, 22% AUM growth for FY22E, FY23E, PAT growth of 30%, 45%, respectively

* Asset quality to stabilise from H2FY22 onwards

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

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 ~| 4.98 lakh crore with presence in life insurance, banking, AMC via its subsidiaries

* BUY with a target price of | 3100

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