Buy Bajaj FinServ Ltd For Target Rs. 2,412 By JM Financial Services
Good quarter, strong outlook for non-lending businesses
Bajaj Finserv’s insurance subs reported strong results. Bajaj Life reported a strong 50% VNB growth led by margin expansion of a staggering 630bps YoY. This was despite APE contraction and GST 2.0 impact, as Bajaj Life 2.0 (focused on margins) entered its 4 th quarter. Meanwhile, Bajaj General reported an 18% like-to-like growth, excluding tender-driven businesses, and a steady Combined Ratio of 102.3%, flattish YoY (excluding 1/n impact). We raise FY26e VNB margin estimate for life sub to 17.5% (up 100bps from earlier estimate, +300bps YoY) and raise the general insurance sub’s PAT by 3-4% over FY26-FY28e. We continue to prefer BJFIN over BAF to play the Bajaj growth story. We maintain BUY with a revised SOTP-based target price of INR 2,412 (up from INR 2,300). The coverage stands transferred to Raghvesh.
* Bajaj Life Insurance reported a 630bps margin expansion YoY: IRNB/total APE contracted 2%/5% YoY, however, a 630bps margin expansion led to a strong 50% YoY VNB growth, to INR 3.7bn. This is the result of management’s focus on margin expansion – led by product mix shift (accounting for 400bps of the expansion) and cost rationalisation (100-125bps). We expect the company to return to growth in 2H after a weak 1H (focus on margins over growth – as a part of Bajaj Life 2.0). We raise our FY26/FY27e VNB margin estimates by 100/50bps to 17.5%/18.0%, translating to a strong 22% VNB CAGR over FY25-FY28e. We value the business at 1.7x FY27e EV of INR 312bn to get a value of INR 239 per share for BJFIN.
* Bajaj General Insurance is steadily growing its retail business, RoEs strong: While like-to-like GDPI growth, ex-crop and tender driven health, was up 18% YoY, NEP declined 10% YoY (+8% QoQ) to INR 24bn. Claims Ratio was seasonally weak at 75.8% but improved 390bps YoY. Opex ratio deteriorated 480bps YoY as the company expanded its motor business market share, especially in TP (Third Party) for 2 Wheelers. PAT grew 5% YoY but declined 22% QoQ on the back of strong investment gains in in 1Q. The company reported an RoE of 16%. Further, it added that, adjusting its solvency to 200%, the RoE would stand at 24%. The strong solvency allows the company to underwrite tender-driven businesses, which peers refrain from. We expect the insurer to grow its PAT by 16%/13% over FY26e/FY27e, value it at 28x FY27e PAT of INR 23.9bn (+3% from our previous estimate) to get a value of INR 305 per share.
* New businesses growing steadily: Bajaj Finserv AMC scaled its AUM to INR 289bn, we value it at 10% of trailing AUM to get a value of INR 13 per share. We value the platform businesses at 5x trailing (FY25) revenues to get a value of INR 41 per share. As these businesses scale up, we see substantial scope for rerating.
* Valuations and view – we raise target price by 5%, maintain BUY: Bajaj Finserv’s insurance subs reported strong results while new initiatives continue to scale. 70%+ of the valuation comes from BAF, which has cut its growth guidance yesterday resulting in stock correction. Further, holdco discount over BAF is trending at 21% against 5 year average of 19%. In our SOTP, we consider the value of the consolidated lending business at a 20% discount to our target price of INR 1,140. We see this as a good buying opportunity. In the medium term, scaling up the new initiatives and listing of insurance subs will add value to the combined entity. We maintain our positive stance on the company, raise FY26-FY28e VNB margins estimate for the life sub and PAT for the general insurance subsidiary. We raise our target price to INR 2,412 (up from INR 2,300 earlier). We maintain BUY.
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SEBI Registration Number is INM000010361
