Bajaj Finserv

28 Sep

All three companies- Finance, Life and General Insurance growing well– Bajaj Finserv

Update on the Indian Equity Market:

On Friday, Nifty closed with 2.3% gains at 11,050. Within NIFTY50, BAJAJFINSV (+6.6%), HCLTECH (+5.3%), and CIPLA (+5.1%) were the top gainers, while SBILIFE (-1.1%), BPCL (-0.9%), and UPL (-0.6%) were the only losing stocks. All the sectoral indices ended positive withIT (+3.5%), MEDIA (+3.4%), and AUTO (+3.4%) gaining the most.

All three companies- Finance, Life and General Insurance growing well– Bajaj Finserv

Excerpts of an interview with Mr. Sanjiv Bajaj, Chairman and MD, Bajaj Finserv (BAJAJFINSV), published on ETBFSI website dated 23rdSeptember 2020:
• Seven or eight years ago, the life insurance company (BALIC) and general insurance company (BAGIC) contributed to around 75-80% of Bajaj Finserv’s consolidated profits. BALIC contributed the largest, followed byBAGIC, and the least contribution came from Bajaj Finance.
• This has changed significantly since then. Today, Bajaj Finance is the largest contributor to consolidated profitability, followed by BAGIC and BALIC respectively.
• Bajaj Finserv owns 74% of the two insurance companies and a little under 52% of the finance company. So the proportion of the profit pick up ends up being different.
• All three engines are growing well so the shareholders get a diversified mix of profits from these companies.
• Companies under the Bajaj Finserv umbrella have become even more digital than before. Management has plans for the businesses to come out stronger, better and to provide a set of solutions for customers keeping in mind lessons learnt in this crisis is what the customers need.
1. Bajaj Allianz Life Insurance (BALIC)
• Life insurance is a peculiar business in the sense that when it is growing fast, the business burns more cash upfront in the form of commissions and expenses. But the company earns premium over a period of time and makes profits in later years. On the other hand, through slow growth years, the opposite happens and the profit goes up.
• Post the difficult lockdown phase, BALIC’s premium collections have come back to 80-85% of pre-COVID levels.
• The two insurance businesses are distributed very well through the country. As a result the recovery is quite good because recovery outside of the top 10, 20 cities has been very strong.
2. Bajaj Allianz General Insurance (BAGIC)
• Bajaj’s market share within general insurance companies is between 6.5% and 7%. Bajaj runs a diversified set of business lines, and most of these lines have market shares which are more or less around the 6.5%-7%`range.
• The market share also varies year on year based on changing competition and market opportunities.
• Bajaj may not be the cheapest policy issuer but is quick, fair, and transparent not only in policy issuances but also in claim handling.
• In the case of crop insurance, it is about 6.5-7% of Bajaj’s mix of the overall industry’s share. There are two main seasons -kharif and rabi –and the share of this business line in Bajaj’s business depends on what the dynamic is in that season. But it normally evens out over a year.
• In terms of uptick in motor insurance, the picture is still not very clear. There is growth due to pent-up demand and further growth is expected due to the upcoming festive season. But what will happen post that towards end of FY21E is unclear.
• The demand is still interwoven with the impact of the pandemic on local lives. Bajaj saw good growth in June. But July and part of August were terrible because of local lockdowns.
3. Bajaj Finance
• Due to the local lockdowns in the last few months, the business in top 20 cities got severely impacted.
• Bajaj Finance got impacted more compared to BAGIC and BALIC as it has a large percentage of business coming from the top 20 cities. But things have been getting better from August.
• Over two-thirds of the borrowers, who took the moratorium, had never bounced with Bajaj Finance earlier. That means they were conserving liquidity.
• Almost 30% of the book took a moratorium in the first couple of months. It came down to the low teens in the last two months. As people got more confident and as the cities and businesses started opening up, they started paying as well and that is a very good sign.
• Even though things are moving in the right direction, the situation is still unpredictable. Bajaj Finance continues to be extra conservative, has stocked up on liquidity and continues to make additional provisions.
• Bajaj Finance also remains conservative in incremental lending and will go back to growth when things start to improve.

Consensus Estimate (Source: market screener and investing.com websites)
• The closing price of BAJAJFINSV was ₹ 5,784/- as of 25-September-2020. It traded at 2.6x/ 2.3x/ 2.0x the consensus BVPS estimate of ₹ 2,188/2,478/ 2,873 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 7,248/- implies a PB multiple of 2.5x on FY23E BVPS of ₹ 2,873/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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31 Jul

RBI should allow one-time restructuring rather than extending moratorium – Bajaj Finserv

Update on the Indian Equity Market:

On Thursday, Nifty ended 0.9%, lower than the previous close at 11,254. The top gainers for Nifty 50 were Dr Reddy (+4.6%), Sun Pharma (+3.7%), and Wipro (+2.5%) while the losing stocks were BPCL (-7.9%), IndusInd Bank (-5.4%), and IOC (-4.0%). The sectoral gainers for the day were Pharma (+3.1%) and IT (+0.7%) while the losers were Media (-2.3%), Pvt Bank (-2.0%) and PSU Bank (-1.9%).

Edited excerpts of an interview with Mr Sanjiv Bajaj, MD, Bajaj Finserv; dated 29th July 2020 from CNBC TV18:

  • Mr Bajaj extended support to HDFC chief Mr Deepak Parekh’s view that the Reserve Bank of India should not extend the loan moratorium.
  • Bajaj Finserv has a total of 6 months available for moratorium by September, and as the economy has started picking up from last month at varying speeds because of local lockdowns creating issues. But it is picking up other than a few key sectors like hospitality, travel, entertainment which are facing very high challenges. But most others have started at least doing okay. So, at a time like this, Mr. Bajaj believes that it doesn’t make sense to extend a blanket moratorium.
  • Moratorium numbers have come down significantly in the month of June as compared to April and May-20 for many banks & NBFCs.
  • RBI should allow one-time restructuring rather than extending the moratorium. According to him, let lenders decide on the basis of each one’s own underlying cash flows, because eventually, it should be kept in mind that there is a cost to doing all this and somebody has bear that cost. A 6-month moratorium is long enough, beyond that will start creating a moral hazard that even reasonable quality borrowers will lose the habit of paying.
  • Bajaj Finserv sees Rs 6,300 crores of credit cost for FY21E.
  • The Company was fortunate enough to raise capital for Bajaj Finance last year. They are adequately capitalised with the Rs 8,500 crore raised last year. As the two insurance companies do not need it, Bajaj Finserv has a significant capital on the books from profits of earlier years.
  • The tier-I ratio is 23-24% which he thinks is a comfortable one.

Consensus Estimate: (Source: market screener website)

  • The closing price of Bajaj Finserv Ltd was ₹ 6,175/- as of 30-July-2020. It traded at 2.8x/2.5x/2.1x the consensus book value estimate of ₹ 2,188/2,478/2,873 for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 7,248/- implies a PB multiple of 2.5x on FY23E EPS of ₹ 2,873/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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28 May

Need more clarity on the extension of the moratorium: Sanjiv Bajaj, Bajaj Finserv

Update on Indian equity market:

Ahead of the monthly F&O expiry session, the Nifty rallied 3.2% (286 points) largely on the back of banking stocks to close at 9,312.  Within the index, only eight stocks closed lower with SUNPHARMA (-2.0%), ULTRACEMCO (-1.5%) and ZEEL (-1.0%) being the biggest losers. Among the winners, AXISBANK (14.2%), ICICIBANK (8.9%) and WIPRO (7.1%) were the highest gainers. Within the sector indices, PVT BANK (7.5%),  BANK (7.3%) and FIN SERVICES (5.9%) were the highest gainers whereas PHARMA (-0.2%) and MEDIA (-0.1%) were the only sectors that closed in the red.

Excerpts from an interview with Mr Sanjiv Bajaj, MD & CEO, Bajaj Finserv aired on  ET NOW on 27th May 2020:

 

  • This pandemic has put the entire economy in a coma because both the demand as well as the supply side has stopped working. He further mentioned that the country needs to get out of lockdown as soon as possible. 
  • Reserve Bank of India (RBI) has taken significant steps and has been quite proactive in the last few months. There is a need to stimulate the demand side as well to balance the equation. People need to be given the confidence to start spending and buy things sensibly. This is how the economy will get back to its feet.
  • According to him, the extension of moratorium was not necessary. For the first three months, the moratorium was understandable as the economy was frozen. The second three-month moratorium needs to be better calibrated. There are still clarifications that a number of companies including Bajaj Finance (a subsidiary of Bajaj Finserv) are pursuing. He would prefer allowing a one-time restructuring which gives the option to the lender to decide which truly deserve extension rather than a blanket moratorium.

 

  • He sought two more clarifications from the RBI. Is the second three-month moratorium applicable only to pre-Covid loans or is it available to new loans today? If somebody takes a new loan today, does he not have to pay for three months? He said that if the above two conditions are allowed, this creates a disadvantage for the lenders.
  • Speaking about the borrowing profile, he mentioned that the sources of borrowing for Bajaj Finance have been well-distributed. The Company does not have over-dependence on Banks. Second, the Company sources 20% of borrowings from fixed deposits. Third, the company keeps 4-7% of borrowings into liquid assets where returns are 4-5% instead of a 20% RoE. This is to ensure that the book stays solid. 
  • He further mentioned that Bajaj Finance at a consolidated level has liquidity of Rs 210,000 mn. It probably takes away Rs 3,000-4,000 mn of profits every year but it creates a stronger franchise in many ways mimicking what a bank does. 

Consensus Estimate: (Source: market screener, investing websites)

  • The closing price of Bajaj Finserv was Rs 4,249/- as of 27-May-2020. It traded at 1.9x/ 1.7x the consensus Book Value estimate of Rs 2,157/ 2,495 for FY21E/ FY22E respectively.
  • The consensus target price of Rs 6,054/- implies a PB multiple of 2.4x on the FY22E BV estimate of Rs 2,495/- 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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12 May

Even in current crisis, insurance penetration has not gone up as per expectations – Mr Tapan Singhel, MD&CEO – Bajaj Allianz General Insurance

Update on the Indian Equity Market:

 

On Monday, Nifty closed marginally negative (-0.13%) at 9,239. Within NIFTY50, HEROMOTOCO (+6.1%), TATAMOTORS (+5.9%), and INFRATEL (+5.9%) were the top gainers, while ICICIBANK (-4.6%), BPCL (-3.2%) and DRREDDY (-3.0%) were the top losers. Among the sectoral indices,AUTO (+4.3%), MEDIA (+2.7%) and IT (+1.4%) gained the most. PVT BANK (-2.2%), BANK (-2.1%) and FIN SERVICE (-1.8%) were the top losers.

 

Even in current crisis, insurance penetration has not gone up as per expectations – Mr Tapan Singhel, MD&CEO – Bajaj Allianz General Insurance

 

Excerpts of an interview with Mr.Tapan Singhel, MD&CEO- Bajaj Allianz General Insurance (Part of Bajaj Finserv) published in Business Standard dated 11th May 2020:

  • The staff of Bajaj Allianz General Insurance (BAGIC) was prepared when the lockdown started as they had gone into Work from home (WFH) before the lockdown was announced.
  • During the lockdown, BAGIC has issued around 1.7 mn policies and settled around 900,000 claims.
  • BAGIC has seen that people are more productive in the WFH structure. If that continues, WFH may become the new norm.
  • BAGIC’s growth for FY19 has been 16% vs. industry growth of 9%.
  • Many enquiries are coming up in the retail health segment. Health policies have Covid-19 cover even now. But the spike in health product sales has not been as much as could be expected. This is surprising given the already low penetration levels of health insurance in India.
  • Among other insurance segments, property business has seen positive movement. Motor business is down 40-50% as new car sales have paused.
  • Due to the current crisis, 2 business segments should ideally see a spike that hasn’t happened yet. For the current prices of health insurance products, people should queue to buy cover. But that exponential growth hasn’t panned out as it should in the current scenario. Secondly, cyber insurance cover should also spike given that cyber crimes have moved up 1000%. Even then, there is hardly any sale of individual cyber cover with an annual premium of Rs 700 for a cover of Rs 1 lakh.
  • In the lockdown period, claims on existing health policies have reduced as most hospitals are operating at 30-50% occupancy. Covid-19 claims haven’t moved up significantly either.
  • Mr.  Singhel is of the opinion that there should be a regulator for hospitals to ensure standardization of rates. Insurance companies do their part by negotiating with hospitals to get standardized rates. In the end, the customer has to pay. If claims ratios go up, insurance companies will increase the prices of products. Customers will be burdened by that.

Consensus Estimate: (Source: market screener website)

  • The closing price of BAJAJFINSV was ₹ 4,565/- as of 11thMay 2020. It traded at 2.1x/ 1.8x the consensus BVPS estimate of ₹ 2,173/ 2,583 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 8,305/- implies a PB multiple of 3.2x on FY22E BVPS of ₹ 2,583.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

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24 Apr

Continued government and RBI intervention till cure or vaccine available: Sanjiv Bajaj, Bajaj Finserv

Update on the Indian Equity Market:

The market ended higher for the second day on expectations of a fresh stimulus package from the government to reduce the damage caused by the ongoing pandemic. IT (4.4%), Private Bank (+3.2%), and Banks (+2.9%) were the top gainers while the losers were FMCG (-1.4%) and PSU Bank (-0.4%). The gainers were led by Kotak Bank (+8.3%), TCS (+5.5%), and Infy (5.2%) while the top losers were Titan (-3.7%), Hindustan Unilever (-2.7%), and Power Grid (-2.5%).

Continued government and RBI intervention till cure or vaccine available: Sanjiv Bajaj, Bajaj Finserv

Excerpts of an interview with Sanjiv Bajaj, Chairman and Managing Director, Bajaj Finserv published in Business Standard on 22nd April 2020:

  • The timely lockdown to control the spread of the covid-19 pandemic helped prepare medical capacity. To kick-start investments, the gradual opening of economic activities in the non-hotspots needs to be done.
  • The lockdown situation has resulted in both, the demand and supply being stopped, which we have never experienced. It is vital for the government and RBI to instill confidence, especially with small businesses, migrant workers, and individual consumers.
  • The measures announced to provide food and some money to the poor section of the society are commendable. Now, working capital and term loans to restart enterprises are needed to kick-start the economy.
  • Banks, though flush with liquidity are playing too safe by not lending funds to NBFCs, HFCs, and micro-finance institutions to avoid credit risk. It could help if the government covered initial losses.
  • With a large domestic consumption base, our economy can restart faster than many other countries, provided the necessary help is provided. We will need to balance opening up the economy with the spread of the virus and any new information about its fatality. Hence, the government and RBI support will be required until a cure or vaccine is available.
  • The measures announced by RBI are welcome though Mr. Bajaj would like to see a direct liquidity line extended by the RBI for larger NBFCs with assets over ₹ 10,000 crores.
  • Public sector banks are not yet extending back-to-back moratorium to smaller NBFCs that are offering moratorium to their customers. Such anomalies, which will prevent the economy from recovering fast must be quickly removed.
  • Smaller NBFCs must shore up their capital requirement, keep additional liquidity, and maintain conservatism in lending practices, to survive the lockdown.
  • The finance and insurance companies of the group have adapted quickly and reasonably efficiently to the work-from-home regime. Productivity is understandably lower, which impacts response times.
  • A reasonable amount of new insurance business is done, completely digitally. A number of processes will be reoriented to work from home even after the lockdown ends.
  • Bajaj Finserv will be ready to offer the different kinds of loans customers might need, once the economy restarts. The loans and insurance products take care of a large number of essential requirements- loans to buy groceries, for medical procedures, to insuring car, factory, shop, and life.
  • Due to the global economy being under stress, there could be some short-term reallocation of global capital towards developed markets. India, which has a large domestic consumption base and a young population, will end up growing faster and eventually attract global capital.
  • In the past few years, our domestic capital has moved from being invest in non-productive assets to financial assets, which is expected to continue and provide an important and dependable source of money.
  • India can emerge as a strong alternative to China and it is important to leverage this once-in-a-lifetime opportunity.

Consensus Estimate: (Source: market screener website)

  • The closing price of Bajaj Finserv was ₹ 4,717/- as of 23-April-2020. It traded at 2.2x/ 2.2x/ 1.8x the consensus book value estimate of ₹ 2,111/ 2,173 / 2,583 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price is ₹ 8,304/- which implies a PB multiple of 3.2x on FY22E BV of ₹ 2,583/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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