Add Bajaj Finserv Ltd for the Target Rs 2,350 by Emkay Global Financial Services Ltd
BJFIN reported healthy 1QFY27 performance, with its Lending and Life Insurance (LI) businesses delivering strong performance, while the General Insurance (GI) business saw satisfactory performance amid a challenging market environment. The LI business posted strong 30% yoy APE growth, led by growth in Group Protection, while VNB margin at 15.9%, despite the impact of GST ITC losses, led to strong ~87% yoy VNB growth. The GI business saw elevated combined ratio at 104.7% (+1.1ppt yoy), led by higher claims ratio in the Government Health segment and de-growth in the Fire segment; PAT at Rs4.8bn declined 28% yoy, driven by weak underwriting results and lower capital gains booked during the quarter. BAF reported a sturdy quarter in terms of growth, profitability, and credit cost, with PAT (attributable to shareholders) growing ~27% yoy to ~Rs59.8bn. Despite a challenging environment in the GI industry, the fundamental strength across businesses under the BJFIN umbrella is intact. We retain ADD and raise Jun-27E TP by ~7% to Rs2,350 from Rs2,200.
LI delivers strong results; satisfactory performance for GI
BJFIN delivered healthy performance in 1Q. The lending business saw a productive 1Q, with PAT growing 27% yoy to ~Rs59.9bn, led by ~24% yoy AUM growth to Rs5.47trn, supported by steady NIMs during the quarter. The GI business delivered ~11% GWP growth, while claims ratio increased to 74.3% (+3.2ppt yoy), led by higher claims in the Government Health segment. Further de-growth in the Fire segment resulted in elevated combined ratio at 104.7% (+1.1ppt yoy). Accordingly, PAT at Rs4.8bn declined 28% yoy owing to lower capital gains booked during the quarter. The LI business delivered strong ~30% yoy APE growth, driven by strong growth in the Group Protection segment. Retail APE grew ~18% yoy during the quarter. VNB margin improved by 480bps yoy, despite the GST ITC loss impact, driven by strong growth in the Protection business. Consequently, VNB grew ~87% yoy to Rs2.7bn.
Focus remains on profitability
The environment in the GI industry remains challenging, given increased competition in the Motor OD segment, nil hike in the Motor TP segment, and pricing aggression in the Fire segment. However, the management continues to focus on underwriting profitable pools of business, prioritizing profitability amid a soft market cycle. In the LI business, the management continues to focus on non-par, annuity, and protection segments driving margin expansion. Further, the GST impact was mitigated partially through rider attachments at same commissions and through distributor negotiations. Leveraging the group’s insurance capabilities, the company plans to launch the reinsurance business, with initial focus on domestic markets.
We maintain ADD and increase Jun-27E TP to Rs2,350
We tweak our estimates following 1Q developments, resulting in a ~3-4% increase in VNB. We increase combined ratio by 50-80bps over FY27-29E. Our consolidated PAT estimates increase by 2-4%, largely owing to an increase in PAT assumptions for BAF. We maintain ADD and increase Jun-27E TP to Rs2,350 from Rs2,200.
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