Add Bajaj Finserv Ltd for the Target Rs.2,200 by Emkay Global Financial Services Ltd
BJFIN reported a healthy Q1FY26, with a satisfactory performance across the lending (BAF) business; however, the general insurance business was a mixed bag. The life insurance segment delivered a strong margin. BAF reported a satisfactory quarter in terms of AUM growth, customer acquisition, operating efficiencies, and preprovisioning profit; however, credit cost remained elevated. BAGIC saw an elevated CoR at 103.6%, on higher expense ratio, whereas claims ratio saw YoY improvement; BAGIC delivered a healthy PAT, aided by robust investment income. The life insurance business saw a strong VNB margin at 11.1% (+4.2ppt YoY), led by strategic initiatives and a higher focus on protection products driving a strong 39% VNB growth; however, APE declined ~13% YoY. To reflect the Q1 developments, we have tweaked our FY26-28E estimates which led to ~1-2% change in PAT over FY26-28E. We maintain ADD, with a revised Jun-26E TP of Rs2,200 (Rs2,100 earlier).
General insurance witnesses elevated CoR; Life delivers a strong margin BJFIN’s performance in Q1FY26 was reasonable, with the lending business (BAF) reporting a satisfactory performance driven by healthy AUM, PPOP, and PAT growth; however, asset quality saw a marginal decline. The general insurance business’s performance was a mixed bag, with modest ~8% GWP growth and an elevated combined ratio at 103.6%, driven by higher expense ratio; claims ratio, though, saw improvement. PAT growth was healthy, driven by robust investment income on the back of higher capital gains realized. The Life insurance business delivered a strong VNB margin at 11.1% (+4.2ppt YoY), driven by a profit-focused strategy and a higher contribution of protection, leading to ~39% VNB growth; however, APE declined YoY.
Focus remains on a profitable growth strategy The general insurance industry continues to grapple with challenges, with a slowdown in the motor segment, increased competition, and the impact of the 1/n regulation; BAGIC, however, has maintained its focus on growing profitably. While the company has prioritized underwriting lower-claims ratio segments, it has seen higher expense ratios, owing to increased distributor payouts to acquire high-quality business. With the implementation of the surrender regulations, BALIC has turned around its strategy to focus on profitability with significant changes in the product construct, which includes higher tenure products, rider attachments, and increasing the minimum ticket size across products. While the strategic shift has resulted in a decline in APE, increased VNB margins have resulted in strong VNB growth.
Minor tweaks in consolidated PAT; reiterate ADD To reflect Q1 developments of improved margins for BAF, higher CoR, investment income for BAGIC, and improved VNB margins for BALIC, we tweak our FY26-28E consolidated PAT by ~1- 2%. Given the strong franchise strength across the lending and insurance businesses, we reiterate ADD with a revised Jun-26E TP of Rs2,200 (from Rs2,100).
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
