Bajaj Finserv Ltd – Financing To the Wide Range of Durables

Bajaj Finserv is the holding company under which there are 3 key financial sector businesses: (i) lending through Bajaj Finance Ltd. (BFL), (ii) general insurance, under Bajaj Allianz General Insurance Company Ltd., or BAGIC; and (iii) life insurance, under Bajaj Allianz Life Insurance Company Ltd., or BALIC. Additionally, there are wind-farm assets in Maharashtra with an installed capacity of 65.2 MW. 

Bajaj Finserv Ltd is one of the Multibagger Shares, identified by Dynamic Levels based on technical and fundamental research.

Bajaj Finserv share price has touched a 52 week high of Rs. 2874 on 01 -Aug-2016 and a 52 week low of Rs.1551.25  on 23 -Feb -2016, and is currently trading at Rs. 2667.

  

Shareholding

The promoters holding in the company stood at 58.36%, FII’s have decreased their position from 7.08% in March 2015 to 6.20% in June 2016, DII’s have marginally increased their position from 8.28% in Mar 2015 to 8.45% in June 2016. Together FII and DII holdings in the company stood at 14.64%.

Some of the NonPromoters holding securities more than 1% of total number of shares are 

• ICICI Prudential Focused blue-chip equity fund: 4.60%
• M/S Jaya Hind Investments Private Limited: 4.02%
• Maharashtra Scooters Limited -: 2.34%
• Life Insurance Corporation of India: 1.99%
• Niraj Bajaj (as trustee of Yamuna trust): 1.15%

Financial Analysis

Quarterly Results

For the quarter ended June 2016, the total income from operations of Bajaj Finserv Ltd has reported a growth of 31.65% on the Y-o-Y basis to Rs. 2911.84 cr as against Rs. 2211.69 cr during the same quarter last year. A boost in total income from operations shows strong development in business.

The consolidated operating profit of Bajaj Finserv Ltd has shown a growth of 25.53% Y-o-Y to Rs. 1995.59 cr as against Rs. 1589.61 cr during the same quarter last year. This is mainly due to rise in the top line of the company.

The net profit of Bajaj Finserv has registered a growth of 15.12% Y-o-Y to Rs.537.51 cr as against Rs 466.90 cr during the same quarter previous year.

Annual Results 

For the year ended March 31, 2016 Bajaj Finserv Ltd, on consolidated basis, reported the net sales of Rs. 9446.40 cr compared to Rs. 7587.01 cr FY2015, increased by 24.50% YOY.

For the year ended March 31, 2016 Bajaj Finserv, on Consolidated basis, reported the net profit of Rs. 1863.27 cr compared to the profit of Rs. 1689.79 cr FY2015, registering a growth of 10.26% annually.

Ratio Analysis 

 

The above ratio suggests that the company is operating with the debt to equity ratio of 2.65. The ratio is well accepted as one of its holding companies (Bajaj Finance) is into lending business and has enough liquidity to pay its short-term obligation. Also, it can easily meet up with the interest expenses pertaining to its debt obligations. The company is generating sufficient returns from its shareholder’s funds.

Investment Rationale

Key achievements of the Company in FY2016 under BFL, BAGIC and BALIC

Lending: Bajaj Finance Ltd. (BFL)

BFL has delivered excellent results and has emerged as one of the leading non-banking financial companies (NBFCs) of India. Here are some of the key points:

• BFL widened its rural marks by setting up branches in Madhya Pradesh, Karnataka and Rajasthan, and launched a medium and small enterprise (MSME) business as a part of its rural operations. The rural lending consumer business is done through six product offerings: digital product finance, Consumer durable finance, personal loan cross-sell, salaried personal loans, refinance loans and gold loans. The newly launched MSME business is done through three product offerings: professional loans, business loans, and loan against property.
• Total income rose by 36% to Rs.  7,384 crore
• Profit before tax was up by 45% to Rs. 1,965 crore.
• Profit after tax increased by 42% to Rs. 1,279 crore.
• Receivables under financing grew by 37% to Rs.  42,756 crore
• Assets under management increased by 36% to Rs. 44,229 crore.
• Capital adequacy as on 31 March 2016 was 19.50%, which was well above the RBI norms.
• Net non-performing assets (NPAs) were at 0.28%, which is among the lowest in banking and the NBFC industry.
• BAGIC has been able to remain the most profitable general insurance company among peers of comparable size.

General Insurance: Bajaj Allianz General Insurance Company Ltd. (BAGIC)

BAGIC is a composite insurer offering various types of general insurance including motor, marine, health and various forms of corporate insurances.

BAGIC has performed well, as the results below shows:

• In FY2016, BAGIC was ranked 2nd among all private sector general insurers in terms of its top-line; and 1st in profits.
• Profit before tax was Rs. 771 crore, marginally below the previous years.
• Profit after tax was Rs. 564 crore, which was slightly above that of FY2015.
• BAGIC maintained its market share at 6.7%, excluding specialized and standalone health insurers.
• Gross written premium (GWP) for FY2016 was up by 11.3% to Rs. 5,901 crore.
• Net earned premium for FY2016 increased by 10% to Rs. 4,224 crore.
• 8.4 million Policies were issued in this year, versus 7.3 million in FY2015.
• Despite huge claims on account of the floods, BAGIC’s solvency ratio was 251%, which was well above the regulatory mandate of 150%.

Life Insurance: Bajaj Allianz Life Insurance Company Ltd. (BALIC)

BALIC’s growth has been positive. BALIC has performed creditably, as the figures below show:

• BALIC was ranked 4th among private companies on the basis of new business premium, thus being the largest non-bank promoted life insurer.
• Shareholders’ profits after tax were stable at Rs. 879 crore
• New business premium grew by 7% in FY2016 to Rs. 2,885 crore.
• Gross written premium was Rs. 5,897 crore.
• It maintained a healthy product mix on its individual new business premium, with 59% contributed by unit-linked premium and 41% by non-unit-linked business

Among the three key businesses of your Company, it is clear that BFL has done extraordinarily well — continuing with the outstanding performance that it has been delivering over the past few years. BAGIC has also done well, growing by 12% in a generally muted market. BALIC, however, faces some growth challenges and needs to do better.

At CMP of Rs.2726 the stock is trading at a P/E of 22.45, the market cap of the company is 45014.31 crore. As per Dynamic Levels we recommend a buy on Bajaj Finserv ltd at correction at around 2570 levels which is a good weekly support (1 week low) for the stock, with a price target of Rs. 2950.The recommended entry price is below current market price, as 2570 is important weekly support and to keep a good Risk to Reward ratio.