Bajaj Finserv reported a 17% y-o-y growth in adjusted profits in 1QFY14 on the back of high earnings growth in the general insurance and finance business. Despite concerns of a slowdown, high growth in consumer finance business boosted loan growth and earnings of the NBFC business. We raise earnings for the NBFC business by 3-8%. Upgrade our rating of Bajaj Finserv shares to ‘buy ‘from ‘add’.
Bajaj Finserv has corrected by 23% in the past three months. Our reverse valuation exercise suggests that the insurance business trades at 1.7X FY2013 net worth. After tweaking down valuation estimates for the life insurance business and raising estimates for the NBFC by 3-8%, we revise our price target to Rs 825 (R800 based on FY2014E and Rs 900 based on FY2015E). The stock offers 28% upside from the current levels.
Bajaj General Insurance reported Rs 100 crore PAT, compared to Rs 64 crore in 1QFY13 and R62 crore in 4QFY13. Net premium increased 36% y-o-y to Rs 800 crore. Provision for motor pool losses declined to Rs 34 crore from Rs 69 crore in 1QFY13. Investment income increased to Rs 140 crore from Rs 100 crore due to increase in the investment book. However, underwriting profits declined to Rs 36 crore from Rs 69 crore y-o-y; consequently, combined ratio increased to 96% from 89%.