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Elevated provisioning, higher claims impact PAT…

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

Q1FY22 Results:

Earnings impacted by elevated provision & claims in Q1FY22.

* Consolidated revenue de-grew ~2% YoY; PAT declined 31% YoY

* AUM grew 15% YoY to | 159057 crore; elevated provision impacted PAT

* GWP increased 9% YoY to | 2494 crore; Covid led to higher claim at 75.9%

* Life premium grew 48% YoY to | 2516 crore; PAT impacted by Covid claim

What should investors do?

Bajaj Finserv’s share price has grown by ~3.8x over the past five years (from ~| 2600 in July 2016 to | 12705 in July 2021).

* We maintain our HOLD rating on the stock

Target Price and Valuation: We value Finserv at ~31x FY23 EPS to arrive at revised TP of |13500 per share from |11500 earlier.

Key triggers for future price performance:

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

* Expect asset quality to stabilise post unlock by Q4FY22

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

* Higher Covid claims claim remain a near term overhang

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 target price of | 3100

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