Aug-17 Jun-17 Apr-17 Feb-17 Dec-16 Oct-16 Aug-16 May-16 Mar-16 Jan-16 Nov-15 Sep-15 Company Update Rating matrix Rating Buy Target 6000 Target Period 12 months Potential Upside 10% What s Changed? Target Changed from 5170 to 6000 EPS FY18E Unchanged at 202.2 EPS FY19E Unchanged at 253.9 Rating Unchanged Key Financials Crore FY17E FY18E FY19E FY20E Revenue 24,522.8 29,330.4 35,583.8 43,520.0 PBT 4,924.5 6,298.3 7,870.1 10,008.3 Net Profit 2,261.9 3,217.6 4,040.1 5,069.3 EPS ( ) 142.2 202.2 253.9 318.6 Valuation summary FY17E FY18E FY19E FY20E P/E 39.5 27.7 22.1 17.6 Target P/E 42.2 29.7 23.6 18.8 P/ABV 5.6 4.7 3.9 3.2 Target P/ABV 6.0 5.0 4.1 3.4 RoE 15.5 18.5 19.2 19.8 RoA 1.9 2.2 2.4 2.5 Stock data Particular Amount Market Capitalization 87269 crore Net worth 14499 crore 52 week H/L ( ) 5625/2515 Equity capital 80 Crore Face value 5 DII Holding (%) 5.8 FII Holding (%) 6.1 Price chart 10,500 9,000 7,500 6,000 4,500 3,000 1,500 0 Research Analyst BJFIN IN Equity Kajal Gandhi kajal.gandhi@icicisecurities.com Vishal Narnolia vishal.narnolia@icicisecurities.com Vasant Lohiya vasant.lohiya@icicisecurities.com NIFTY Index 6,000 5,000 4,000 3,000 2,000 1,000 0 August 29, 2017 Bajaj Finserv (BAFINS) 5443 Growth to persist on fundamental strength Bajaj Finserv is a financial conglomerate that is engaged in life insurance, general insurance, consumer finance and other financial products. The company has 74% stake in two insurance companies viz. Bajaj Allianz Life Insurance Company (BALIC) and Bajaj Allianz General Insurance Company (BAGIC) and 57.3% stake in Bajaj Finance. Bajaj Finserv s stock has been on a continuous uptrend on the bourse nearly doubling in last 12 months and increasing 39% in last three months. This movement is attributable to consistently robust growth in lending business, higher efficiency in general insurance business and steady performance in life insurance business. Near term listing of general insurance companies anticipated at higher valuation warrant an upgrade of Bajaj s general insurance business. Hence, we revise the valuation of general insurance upwards to 34003 crore, valuing the same at 24x FY20E PAT (earlier 20x FY19E). Going ahead, we remain positive on the stock owing to 1) sustained healthy performance of Bajaj Finance 2) strong growth and improving efficiency in general insurance business and 3) increasing traction in life insurance. Rolling over to FY20E, we revise our TP to 6000/share ( 5170 earlier) for Bajaj Finserv, implying a multiple of 18.8x on FY20E consolidated earnings. Consequently, we maintain BUY rating on the stock. Near term listing of general insurance warrants upgrade The general insurance business remains strong generating RoE in excess of 24%, reporting underwriting profit on <100% combined ratio & extensive retail focus. Traction in the retail segment coupled with premium from crop insurance scheme will keep GWP growth at ~20% in FY18-20E. Combined ratio of <100% and resultant underwriting profits are expected to keep RoE above 20%. In addition, near term listing of general insurance companies anticipated at higher valuation warrant an upgrade of Bajaj s general insurance business. Therefore, we revise the valuation of general insurance upwards to 34003 crore, valuing the same at 24x FY20E PAT (earlier 20x FY19E). With higher proportion of savings anticipated to find their way towards financial savings, acceleration is expected in life insurance premium at ~10% CAGR in FY18-20E. We value Bajaj Life insurance at 32192 crore, valuing at 2.1x FY20E EV. Healthy growth momentum in Bajaj Finance to aid earnings momentum A distinguished business model in the consumer durables portfolio boosted advances growing 36% YoY to 60194 crore in FY17 while asset quality sustained despite a weak economic environment. Margins sustained ~10% due to higher IRR. PAT surged at 40% CAGR in FY11-17 with contribution bulging to 42% from 25% earlier. We expect healthy PAT growth of 34% CAGR to 3286 crore. Accordingly, we value the finance business at ~ 109810 crore, based on 25x FY20E EPS. Exhibit 1: Valuation on SOTP basis (FY20E) Business Basis Stake (%) Business Value Value of stake ( crore) Value/ share after 15% discount ( ) Bajaj Allianz Life Insurance 2.1x EV 74 32192 23787 1271 Bajaj Allianz General Insurance 24x PAT 74 34003 25162 1344 Bajaj Finance 25x EPS 57.3 109810 62899 3360 Windmill 6 per mw 100 397 397 25 Total 6000 Source: ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research
Financial summary Profit and loss statement Crore Revenue Life Insurance 6183 6746 7424 8186 General Insurance 7688 9302 11256 13507 Total 13871 16049 18679 21693 Less: Reinsurance ceded 2447 2274 2737 3270 Reserve for unexpired risk 364 279 338 405 Net Insurance Premium Earned 11059.9 13495.1 15604.5 18017.4 Investment and other income 3403.7 2568.3 2706.0 2920.2 Total Insurance Income 14463.6 16063.5 18310.5 20937.5 Investment and others 147.2 220.9 276.1 345.1 Retail financing 10006.5 13071.2 17020.5 22258.9 Windmill 70.3 73.8 77.5 81.4 Total 24687.7 29429.3 35684.7 43623.0 Less: Inter-segment revenue 164.9 98.9 100.9 102.9 Total revenue 24523 29330 35584 43520 Pre-tax profit General Insurance 1105 1419 1681 2024 Life Insurance 914 1040 1144 1258 Total Insurance 2018 2459 2825 3282 Retail financing 2877 3753 4946 6611 Investments & others -13 44 55 69 Windmill 43 42 44 46 Total PBIT 4925 6298 7870 10008 Less: Interest -13 44 55 69 Profit before tax 4925 6298 7870 10008 Tax -1475-1567 -2015-2661 Net profit before minority 3450 4732 5855 7347 Minority and deferred tax adjustments 1188 1514 1815 2278 Net profit 2262 3218 4040 5069 Balance sheet Crore Sources of Funds Shareholders' Funds 1582 1901 2302 2806 - Share capital 80 80 80 80 - Reserves & Surplus 15737 18926 22938 27980 Policy liabilities 19149 16549 17210 17899 Provision for linked liabilities 20400 24823 25816 26848 Funds for future appropriation in policyholders' account 322 460 484 508 Minority interest 7201 8715 10530 12808 Loan funds 39385 64725 85068 112798 Defered tax liability (net) 9 10 10 10 Current liabilities 25463 22917 20625 18563 Provisions 873 908 944 982 Total liabilities 128617 158113 183705 218475 Applications of Funds Fixed assets 960 1833 1929 2098 Goodwill on investments in associates 689 689 689 689 Investments 9397 24468 27872 31567 Policyholders' Investments 28258 22127 23670 25683 Assets held to cover linked liabilities 20838 22222 23877 25598 Deferred Tax Assets (net) 433 455 478 502 Current assets 10359 9023 3645-1195 - Receivable under financing activity 57683 77295 101546 133532 Misc Expenditure 0 0 0 0 Total Assets 128617 158113 183705 218475 Key Ratio CMP 5609.1 5609.1 5609.1 5609.1 No. of shares in mn 159.1 159.1 159.1 159.1 EPS 142.2 202.2 253.9 318.6 BV 994.0 1194.4 1446.6 1763.4 RoA 1.9 2.2 2.4 2.5 RoE 15.5 18.5 19.2 19.8 P/BV 5.6 4.7 3.9 3.2 P/E 39.5 27.7 22.1 17.6 (Year-end March) - Growth ratios FY17 FY18E FY19E FY20E Gross Written Premium - Life 4.8 9.1 10.0 10.3 - General 30.3 21.0 21.0 20.0 Loan book Bajaj Finance 33 34 31 32 Consol Networth 18 20 21 22 Consol Revenues 19 20 21 22 Consol PAT 21 42 26 25. ICICI Securities Ltd Retail Equity Research Page 2
ICICIdirect.com coverage universe (NBFC) CMP M Cap EPS ( ) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E LIC Housing Finance (LICHF) 658 750 Hold 33,207 38.3 46.9 56.4 17.2 14.0 11.7 3.1 2.5 2.1 1.4 1.5 1.5 19.1 19.4 19.3 Reliance Capital (RELCAP) 794 905 Buy 19,629 42.7 53.9 69.0 18.6 14.7 11.5 1.5 1.5 1.3 1.5 1.6 1.9 6.7 7.9 9.7 HDFC (HDFC) 1,771 1,910 Buy 280,024 46.8 51.6 58.7 37.8 34.3 30.2 7.6 6.9 6.2 2.4 2.3 2.3 21.0 21.1 21.6 CARE (CARE) 1,506 1,750 Buy 4,287 51.4 59.9 69.3 29.3 25.1 21.7 8.9 7.8 6.8 36.4 36.5 38.0 30.4 31.0 31.2 Bajaj Finserv (BAFINS) 5,609 6,000 Buy 87,622 142.2 202.2 253.9 39.5 27.7 22.1 5.6 4.7 3.9 1.9 2.2 2.4 15.5 18.5 19.2 Bajaj Finance (BAJFI) 1,796 2,025 Buy 96,786 33.9 45.3 60.1 52.9 39.7 29.9 10.2 8.2 6.8 3.3 3.4 3.4 21.6 23.1 24.7 ICICI Securities Ltd Retail Equity Research Page 3
RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 4
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