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In 2Q24, Bajaj Finserv reported consol PAT of INR 19.3bn led by strong performance in Bajaj Finance (+28% YoY PAT) while insurance subsidiaries BAGIC and BALIC also reported strong growth and profitability. BAGIC delivered profit of INR 6.26bn, +39% YoY attributable to better underwriting result & better investment performance, including higher profit on sale of investments. GWP growth was strong at 54% YoY driven by government health segment; GWP growth (ex crop and govt health) was at 22% YoY vs 16% for the industry with group health segment leading the growth at +53% YoY while even motor segment saw a healthy growth of +17% YoY. While loss ratio increased to 78% vs 75.5% YoY driven by higher mix of crop and government health business and higher claims due to heavy rains & cyclone related claims, COR improved 450bps YoY to 95.3% driven by better expense ratios. BALIC continued outperforming the industry with indvl APE growth of 32% YoY vs 13% for the industry and 16% for private peers driven by strong growth in par savings (+135% YoY), protection (+76% YoY) and ULIPs (+28% YoY); while non-par savings and annuity witnessed a decline of 9.5% and 27% YoY resp. . The insurer generated net NBV of INR 2.4bn (+25% YoY) with margins of 14.6% (vs 15.2% in 2QFY23). The NBV growth was mainly driven by business growth and change in product mix. Bajaj Finance (BAF) reported a strong, all-round quarter with 30% PPOP growth (YoY), 28% PAT growth (YoY), 33% YoY AUM growth with continued stability in portfolio metrics and operating leverage. Reported NIMs moderated by 14bps QoQ primarily led by higher cost of funds and management indicated NIMs could moderate further 25-30bps given volatility in rates though the impact on RoAs could be offset by better operating leverage and lower credit costs. We expect Bajaj Finance to deliver 29% CAGR in AUM and 27.5% CAGR in earnings over FY23-25E as operating leverage sustains. We believe BJFN’s current valuations offer an attractive entry point for investors to play next leg of growth in Bajaj Finance, continued improvement momentum in life insurance and a best-in-class general insurance business which is currently at a cyclical trough with respect to earnings growth. We maintain BUY with a revised target price of INR 1,860

* BAGIC– revival in GWP growth momentum: In 2QFY24, GWP increased 54% YoY vs 19% for the industry. The lopsided growth was on account of government health segment; GWP growth (ex crop and govt health) was at 22% YoY vs 16% for the industry. GWP growth was better than the industry in almost all segments with group health segment leading the growth at +53% YoY while even motor segment saw a healthy growth of +17% YoY. Within motor segment, 2Wheelers and 4Wheelers witnessed strong growth of 20% YoY and 17% YoY resp., while CV growth was moderate at 6% YoY. Product mix expectedly shifter in favour of government health due to lopsided growth. Ex-government health segment, group health constituted aroun 19% of GWP while motor segment was at 29%. Channel mix moved in favour of direct (driven by government health business), while individual agents and brokers stood at 12% and 23% resp (flat and -14pps YoY). While loss ratio increased to 78% vs 75.5% YoY driven by higher mix of crop and government health business and higher claims due to heavy rains & cyclone related claims, COR improved 450bps YoY to 95.3% driven by better expense ratios. Underwriting profit was at INR 0.37bn vs underwriting loss of INR 0.18bn YoY. PAT for 2QFY24 was at INR 6.26bn (+39% YoY) aided by stable investment performance and savings in total costs. Solvency ratio remained robust at 352%.

* BALIC – APE growth driven by par savings segment: In 2QFY24, BALIC continued outperforming the industry with indvl APE growth of 32% YoY vs 13% for the industry and 16% for private peers driven by strong growth in par savings (+135% YoY), protection (+76% YoY) and ULIPs (+28% YoY); while non-par savings and annuity witnessed a decline of 9.5% and 27% YoY resp. Consequently share of par was up 14pps YoY to 32% while protection stood at 4% (+1pps YoY). Non-par and annuity mix dropped to 24% and 5% resp. (-11pps and -4pps YoY rep). Channel wise, all channel saw secular growth with agency, banca led institutional business and direct business growing at +34% YoY, +30% YoY and +35% YoY resp. PAT for life insurance business was at INR 1.93bn mainly due to higher shareholder income and lower death claims, partially offset by higher new business strain on account of strong business growth. The insurer generated net NBV of INR 2.4bn (+25% YoY) with margins of 14.6% (vs 15.2% in 2QFY23). The NBV growth was mainly driven by business growth and change in product mix. Solvency ratio remained robust at 466%.

* Bajaj Finance – Strong all-round show: In 2QFY24, Bajaj Finance (BAF) reported a strong, all-round quarter with 30% PPOP growth (YoY), 28% PAT growth (YoY) with continued stability in portfolio metrics and operating leverage. AUM growth stood at 33% YoY led by growth across segments - auto finance (+63% YoY), SME (+38% YoY), mortgages (+28% YoY). However, rural B2C segment continued at a moderate pace. Reported NIMs moderated by 14bps QoQ during the quarter primarily led by higher cost of funds. Management indicated NIMs could moderate further 25-30bps given volatility in rates though the impact on RoAs could be offset by better operating leverage and lower credit costs. While acknowledging concerns on competitive intensity in unsecured loans and higher customer leverage, mgmt highlighted its own portfolio quality metrics remain significantly better than industry and they have already taken proactive measures with respect to cutting out growth in certain segments. As such, overall environment remains sanguine in the large buckets of unsecured lending market. Digital initiatives continue to scale up well with continued momentum on app installs, digital acquisition and payments is gathering further momentum. We expect Bajaj Finance to deliver 29% CAGR in AUM and 27.5% CAGR in earnings over FY23-25E as operating leverage sustains.

* Valuation and TP: We value Bajaj Finserv using SOTP. We assign INR 263 per share for life sub, INR 251 per share for general sub and INR 1,345 per share for Bajaj Finserv's c.53% stake in BAF (after 10% holdco discount). Using SOTP, we arrive at a TP of INR 1,860 for BJFIN.

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