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Bajaj Finserv - Q2FY21 Result Update - ICICI Securities

Posted On: 2020-10-22 07:52:41

Bajaj Finserv reported steady traction in its lending business. With slower premium accretion for Bajaj Finserv, consolidated topline was up 5.8% YoY to Rs. 15052 crore, lower compared to earlier run rate, due to moderation in the lending business. While the insurance business witnessed an improvement in earnings, contingent provisioning of Rs. 1370 crore impacted consolidated earnings reported at Rs. 986 crore, down 18% YoY. Amid lockdown & risk aversion, AUM remained flat at Rs. 137300 crore. Subsequently, NII growth came in at 4% YoY to Rs. 4158 crore. Contingent provision of Rs. 1370 crore was partially offset by tight cost control, leading to 14% YoY growth in operating profit to Rs. 3005 crore. PAT came in at Rs. 965 crore, down 36% YoY and flat QoQ. Asset quality improved amid standstill classification with GNPA at 1.03% vs 1.4% in Q1FY21.

Valuation & Outlook

Leaving FY21E behind, front-loading provisions for asset quality stress, Bajaj Finance management has guided for strong improvement of 25-27% growth in AUM and credit cost at 160-180 bps from FY22E. Tight control on cost and focus on improving collection bodes well in a changed environment. Demand for protection & guaranteed products is seen driving life insurance premium and VNB margins ahead. Higher acceptance of health insurance bodes well for premium accretion ahead, though claims are seen to be gradually increasing as normalcy resumes. With plans to enter into asset management, license for AMC has been applied. Given anticipation of healthy growth in earnings at ~19% CAGR in FY21-Y22E and prevailing steep holdco discount, we upgrade our target to Rs. 7000/share (earlier Rs. 6400) based on SOTP valuation, implying a multiple of ~23x on FY22E consolidated earnings. Hence, we upgrade the stock from HOLD to BUY.

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Shares of BAJAJ FINSERV LTD. was last trading in BSE at Rs.5872.3 as compared to the previous close of Rs. 5905.9. The total number of shares traded during the day was 39221 in over 10178 trades.

The stock hit an intraday high of Rs. 6079.25 and intraday low of 5830. The net turnover during the day was Rs. 234260124.

Source: Equity Bulls

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