INSUBCONTINENT EXCLUSIVE:
IIFL has a buy call on Bajaj Finserv with a target price of Rs 7,680.
The current market price of Bajaj Finserv is Rs 6,411.65.
Time period
given by the brokerage is one year when Bajaj Finserv price can reach the defined target.
View of the brokerage on the company:We resume
coverage on Bajaj Finserv (BJFIN) with a BUY rating and 12-m target price of Rs 7,680
BJFIN is a retail financial services conglomerate with a trinity of assets in the underpenetrated markets of financing and insurance
We expect the financing business (BAF) to continue to drive value for BJFIN over the medium term, similar to the past five years
However, we believe franchise value of insurance businesses remains under-appreciated
Divestment of stake in the insurance businesses to JV partners could unlock further value.
Insurance: Non-life doing well but life needs a
lifeline: We expect the general insurance business (BAGIC) to sustain its robust performance as the second largest private player but with
the best combined ratios in the sector
We forecast 21 per cent EPS Cagr over FY18-21ii with 23 per cent RoE
A gradual improvement in the growth outlook for the life insurance business (BALIC) via higher VNB margin could provide additional upside
after the underperformance during FY12-17.
Financing- Key value driver for long term: BJFIN has established a well-diversified financial
services firm – Bajaj Finance (BAF) – with stron g franchises in consumer and small business lending
It has delivered significant value over the past five years and is scalable enough to sustain the robust AUM growth
Cost competitiveness would drive strong earnings growth in the medium term
Hence, contribution to earnings and franchise value from financing would continue to rise.
Initiate with BUY, insurance story
under-appreciated: We value BJFIN using SoTP methodology to arrive at our 12-month tar get price of Rs 7,680, implying 21 per cent potential
We believe 22 per cent rally YTD in BJFIN has largely been fuelled by strong performance at BAF (up 56 per cent YTD, 64 per cent of SoTP)
while the insurance businesses remain under-appreciated
Potential corporate actions in insurance businesses including divestment of stake sale in favour of a JV partner or high dividend payout are
