IGI Logo

BJFIN reported a satisfactory performance in Q2FY25 with reasonable performances posted by its established operating subsidiaries (BAF, BAGIC, and BALIC) amid the difficult and changing external environment. The emerging ventures (Finserv Health, Finserv Direct and AMC) continued to make good progress toward their journey to sustainable and profitable growth. Rising credit cost dented BAF’s Q2 results and the guidance of increased credit cost for FY25 (2.05%) led to a cut in our earnings estimates. BAGIC delivered reasonable performance with the combined ratio of 101.5% coming better than peers, and BALIC reported a solid 40% APE growth; however, VNB margin dropped 3.8ppts YoY to 10.8% owing to higher ULIP. To reflect the Q2 developments, the management commentary and the external developments, we have tweaked our FY25-27 estimates leading to a ~1-2% cut in FY25-27E EPS. We reiterate our BUY rating with revised Sep-25E TP of Rs2,050 (from Rs2,150 earlier).

A satisfactory quarter amid difficult external environment

BJFIN’s Q2FY25 results (Exhibit 1) were satisfactory, and can be seen as glass half full (with BAF reporting a healthy RoA and relatively limited surge in credit cost, BAGIC reporting the best combined ratio among listed multiline peers, and BALIC reporting a solid 40% APE growth) or glass half empty (BAF increasing guidance for FY25 credit cost, BAGIC reporting a material 6.1ppts YoY worsening in combined ratio despite reduced government health business, and BALIC seeing a sharp decline in VNB margin). However, these results once again reaffirm the strength of each of BJFIN’s operating entities as they were able to deliver better than most peers, amid a challenging macro and regulatory environment. The emerging businesses continue to progress well on key operating metrics and even improve their financial metrics (revenue and profitability).

Strategy of scaling up first and then chasing profitable growth to continue

Over the last two decades, BJFIN has demonstrated a very consistent strategy of first scaling up fast to become meaningful in the business segment, and then following profitable growth or putting profitability above growth. This will continue to be their guiding principle while chasing profitable growth in BAF and BAGIC, and while scaling up the newer ventures. As far as BALIC is concerned, amid newer surrender regulations, the company will likely sacrifice some profitability to continue to gain scale in order to establish a long term sustainable franchise. Last week, media reports of Allianz looking to exit Insurance JVs with Bajaj was confirmed by BJFIN. This was neither surprising nor going to have any material impact on the strategy and operations of BAGIC and BALIC, in our view

Minor changes to estimates; thesis remains unchanged; reiterate BUY

To reflect the Q2 developments of: 1. Higher credit cost for Q2 and guidance for FY25- led earnings estimate cut for BAF; 2. Driven by higher ULIP, the lower VNB margin at BALIC and a likely weaker margin in H2 due to new surrender regulations; and 3. Higher NatCat and Motor TP losses led to combined ratio uptick at BAGIC; we have adjusted our FY25-27E for BJFIN leading to ~1-2% cut in consolidated earnings estimates (Exhibit 2). Our SOTP-based Sep-25E target price comes down 5% to Rs2,050 (from Rs2,150 earlier; Exhibit 3), largely driven by our BAF TP cut to Rs8,800 (from Rs9,300 earlier). We reiterate BUY on BJFIN as we continue to see (Read: Initiation report dated 13-Sep-24) the established businesses of BJFIN delivering consistent strong growth in profitability, while the emerging ventures continue to scale at a fast pace.

For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354