Q4FY23 Review: Bajaj Finserv: Finance remains strong; Insurance improves

Bajaj Finserv (BJFIN) reported strong Q4 profit growth of 31% YoY (per Ind AS). BALIC retail APE grew at a robust 48% YoY, led by strength in Non-par and Protection, while Group business declined. BAGIC saw 14% YoY growth in premiums. Loss ratios ex-Crop improved by 420 basis points QoQ, as Motor claims normalized. Overall, both the Insurance businesses continue to grow profitably and above industry average. 

Analysts at IIFL Capital Services believe the stock is coming out of the shadows of Bajaj Finance, with Insurance subsidiaries performing well, while also offering optionality from investments in Fintech and Health platforms. Implied holding company discount on Bajaj Finance (30%) is now in line with its 5-year average. IIFL Capital Services’ 12-month SoTP-based target price stands at Rs 1,500, as they largely maintain estimates until the release of public disclosures. 

Bajaj Finance (BAF) – nearing full implementation of omnipresent strategy

BAF’s omni-presence strategy of offering all products (loan, investments, payments, etc.) is nearing completion, with the final phase of app and web platforms expected to be rolled out by April/May 2023. The company now has 35 million customers using its app (net installs). BAF will be augmenting its payments proposition by launching more functionalities over next couple of months and continuing to expand infrastructure. BAF remains confident of delivering 28-29% AUM growth with a 5-15 basis points moderation in ROAs in FY24. IIFL Capital Services’ banking team bakes in AUM CAGR of 25% over FY23-25.

BAGIC – Loss ratios improve; Motor normalizes

BAGIC’s gross premium grew by 14% YoY, as Group Health Segment continued its strong performance. Retail Health and Motor also reported strong Q4 numbers, witnessing a GDPI growth of 16%/13% YoY. Loss ratio improved by 570 basis points QoQ, led by Motor, due to better selection of business and normalization of aberrations like high motor OD & crop loss ratios. Combined ratio dropped to 97.3% with 100 basis points YoY improvement.

BALIC – Strong growth in retail APE led by Non-Par

Strong growth of 48% YoY in retail APE (led by momentum in Non-par, +133% YoY) was offset by weakness in Group business (-34% YoY), primarily Group savings. Agency business (+65% YoY) led growth in APE; though other channels were equally strong too. VNB grew by 35% YoY, even as margin for Q4 declined by 90bps YoY to 18.6%. At 8%, EV accretion in FY23 was weak on large negative investment variance; RoEV for FY23 stood at 14.4%.