Bajaj Finserv: Strong growth across businesses to drive upside

28 Nov 2023 , 11:39 AM

Recommendation: Buy; Target price: Rs 2000

 

Analysts of IIFL Capital Services upgrade Bajaj Finserv (BJFIN) to BUY with a revised 12-month SoTP-based TP of Rs2,000, led by higher potential upside coming from Bajaj Finance (BAF) and strength in the two insurance businesses, coupled with optionality from investments in its fintech and health platforms. During the recently concluded Q2FY24, BALIC reported a growth of 32% YoY in Retail APE, driven by strength in the Par segment. BAGIC saw a 54% YoY growth in GDPI, driven by Government Health segment. Overall, both insurance businesses continue to grow above the industry average. Analysts of IIFL Capital Services forecast BAGIC/BALIC to grow their PAT/VNB at 23%/24% Cagr over FY23- 26, while BAF is expected to grow its EPS by 27% Cagr. Even after applying a 20% holdco discount to all the three assets, analysts of IIFL Capital Services see a 24% potential upside to the stock. BAF’s implied holdco discount in BJFIN stands at 20% — in line with 6yr averages. Upgrade to BUY. 

BAF – building new technological moats: 

Analysts of IIFL Capital Services banking team bakes in an AUM Cagr of 30% over FY23-26, as BAF continues to expand into new segments while simultaneously expanding distribution for existing products. BAF has been amongst the early adaptors of new tech, enabling it to grow at scale. Its high-profit pool and agility and ability to implement at scale make it a partner of choice for global tech companies. During Q2FY24, BAF reported an AUM/NII/profit growth of 33%/30%/28% YoY. 

BAGIC – diversified product portfolio; focus on profitable growth: 

Analysts of IIFL Capital Services expect BAGIC to deliver 16%/23% GDPI/EPS Cagr over FY23-26, led by a well-diversified product portfolio and multi-channel distribution, supported by prudent underwriting. During Q2FY24, BAGIC’s GDPI grew by 54% YoY, driven by the Government Health segment. Combined ratios improved 450bps YoY to 95.3%, driven by improving expense ratios. 

BALIC – all distribution channels firing well: 

Analysts of IIFL Capital Services forecast an 18%/24% APE/VNB Cagr over FY23-26ii. BALIC’s strength on the Agency channel front has blended well with its Institutional Business landscape, as it focuses on partner integration to build a sustainable business. BALIC has consistently outperformed the private sector in terms of growth in retail APE for the past several quarters. It recorded a 32% YoY growth in retail APE and 25%YoY growth in VNB during Q2FY24. With Axis Bank counter share stabilizing, growth will be driven by a more broad based push across channels.