ICICI Direct: Bajaj Finserv’s One-Offs Impact Q1 Earnings; Uncertain Outlook
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ICICI Direct Report
Bajaj Finserv Ltd. reported steady traction in its lending business. Slower premium accretion in insurance got offset by strong investment gains. Higher topline coupled with lower claims and cost control led earnings. Consolidated topline came in at 15.6% YoY to Rs 14,192 crore, primarily led by a healthy performance in lending business and strong investment income in insurance business.
Lending arm Bajaj Finance made a contingent provision of Rs 1,450 crore amid Covid-19 though lower opex in lending business and fall in claims led to 13.8% YoY increase in consolidated profit before tax to Rs 2,568 crore. Hence, consolidated profit after tax was at Rs 1,215 crore, up 43.7% YoY.
Improvement in moratorium book stayed the main highlight during the quarter. Strategy to focus on selective pocket for growth, tight control on cost and improve collection bodes well in a changed environment. However, anticipation of increase in credit cost, slower business growth is seen keeping earnings momentum benign. Hike in premium rates for protection products would stabilise business growth, margins. Accretion in annuity, guaranteed products are seen keeping margins steady ahead.
Higher acceptance of health insurance bodes well for premium accretion ahead, though revival in claims as economy attains normalcy is seen stabilising underwriting profitability in general insurance business. The management’s continued focus on staying profitable on underwriting basis rather than investment income gives confidence. Given persisting uncertainty, we broadly maintain our estimates with earnings expected to grow at approximately 18.7% compound annual growth rate in FY21-22E.
We maintain Hold with a revised target price of Rs 6400, based on sum of the parts valuation, implying multiple of approximately 21 times FY22E consolidated earnings.
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