InitiatingCoverage BankingandFinance 4thFebruary2019… · Sector:BankingandFinance 04-02-2019 18...

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RivaPatel - Assistant Research Analyst ([email protected]); 0261-6725518

Banking and FinanceInitiating Coverage |

4th February 2019

Investors are advised to refer through important disclosures made at the last page of theResearch Report.Jainam Share Consultant research is available on www.jainam.in

http://www.motilaloswal.com/Institutional-Equities

Jainam share Consultant Pvt Ltd. Sector : Banking and Finance

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IndexA. BAJAJ FINSERV

1. About.………………………………………………………………………….42. Bajaj Group…………………………………………………………………….53. Segments………………………………………………………………………64. Top 10 Shareholders……………………………………………………….….7

B. BAJAJ GENERAL INSURANCE COMPANY LTD

1. About the Company…………………………………………………………...92. Industry………………………………………………………………..……...113. Business of the company……………………………………………………...144. Financials………………………………………………………………………175. Peer Analysis…………………………………………………………………...20

C. BAJAJ LIFE INSURANCE COMPANY LTD

1. About the company……………………………………………………………………………………222. Industry……………………………………………………………………………………………………..23Business Of the Company………………………………………………………………………….……263. Financials…………………………………………………………………………………………………..324. Peer Analysis……………………………………………………………………………………………..35

D. BAJAJ FINANCE LTD

1. About the Company……………………………………………………………………………………372. Industry…………………………………………………………………………………………………..…383. Business of the Company……………………………………………………………………………404. Financials……………………………………………………………………………………………………475. Peer Analysis………………………………………………………………………………………………49

E. BAJAJ HOUSING FINANCE

1. About the company……………………………………………………………………………………502. Consolidated Financial Statements…………………………………………………………….51

F. SCENARIO ANALYSIS

1. Bajaj Life…………………………………………………………………………………………………….53


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2. Bajaj General……………………………………………………………………………………………..543. Bajaj Finance……………………………………………………………………………………………..54G. Conclusion

1. Recommendation……………………………………………………………………………………….562. Sources……………………..……………………………………………………………………………….573. Full Form and Glossary…………….…………………………………………………………………584. Report Gallery……………………………………………………………………………………………595. Disclaimer……………………………………………………………………………………..………….60


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Company Overview

About

Exchange: BSE BSE Code:532978 Current Market Price:6009.8 Date:04-02-19

Latest Date 4th Feb-19

Latest Price (Rs) 6009.80

52 Week High (Rs) 7200.00

52 Week Low (Rs) 4400.00

Face Value(Rs) 5.00

TTM P/E 31.20

Industry PE 16.18

TTM Period 201812

Price/BV(x) 4.17

EV/TTM EBIDTA(x) 11.50

EV/TTM Sales(x) 4.73

Dividend Yield% 0.03

MCap/TTM Sales(x) 2.87

Market Cap (Rs in Cr. ) 95637.62

EV (Rs) 157568.59

Latest no. of shares (in Cr.) 15.91

Bajaj Finserv is the holding company underwhich there were three key financial sectorbusiness: (i) lending through Bajaj FinanceLtd, which itself is a listed company, (ii)general insurance under Bajaj Allianc GeneralInsurance Company Ltd, (iii) life insurancethrough Bajaj Allianz Life insurance companyLtd. Bajaj Finserv also has wind farm assets inMaharashtra with an installed capacity of65.2MW. As of 31st March 2018, Bajaj Finservholds 74% of equity capital in BAGIC andBALIC and 26% by Allianz S.E

Under Bajaj Finserv we can categorise aslending and Protection and Savings. Underlending, Bajaj Finserv participates in financingbusiness through Bajaj Finance Ltd. Underprotection and savings, its done throughBAGIC and BALIC.

Bajaj Finserv owns and operates 138windmills in Mahashatra. Apart from revenuefrom sale of power generated by these windfarms, BFS also earns revenue fromRenewable Energy Certificate (REC).

BAJAJ FINSERVLTD


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BAJAJ GROUP

* 49.3% through Bajaj Holdings and Investment Ltd and promoter group.#58.35% through Bajaj Holdings and Investment Ltd and promoter group.


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Segments

SEGMENT REVENUE

(in Crs) FY14 FY15 FY16 FY17 FY18 CAGRInsurance 11,296.61 12,385.38 13,028.95 14,462.82 17,037.23 10.82%

Investment andOthers 146.65 212.75 185.01 147.24 61.21 -19.62%

Retail Financing 4,049.80 5,402.79 7,348.67 10,006.53 13,429.02 34.94%Windmill 60.44 50.31 58.37 70.32 71.95 4.45%

In FY18, highest revenue contribution is from Insurance 55.67%, followed by retail financing43.89%,followed by Windmills 0.24% and lastly is Investment and others which is 0.20%.

Though highest contribution comes from Insurance but Retail Financing is growing muchfaster rate then other segments, CAGR of 34.94%.

SEGMENT RESULTS


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Insurance, Retail Financing and Windmill is profitable business where as there is a loss frominvestment income.

Growth in segment profit of Retail Financing is 40% followed by Insurance is 5.16%, followedby de-growth of 5.52% in Windmill.

Major growth performers in revenue and segment result is from Retail Financing andInsurance.

Top 10 Shareholders

*as on 31st March 2018

ShareholdersVanguard Emerging Markets Stock Index Fund 0.43%

SBI Blue Chip Fund 0.44%Niraj Bajaj (Trustee of Yamuna Trust, Bajaj

Group Trust)1.15%

Niraj Bajaj (Trustee of Narmada Trust, BajajGroup Trust)

0.69%

Maharashtra Scooters Ltd. 2.34%Life Insurance Corporation of India 2.7%Jaya Hind Investments Pvt Ltd. 3.78%

ICICI Prudential Focused Bluechip Equity Fund 1.31%Government of Singapore 0.4%

Abhay Firodia 0.65%


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BAJAJ ALLIANZ GENERAL INSURANCECOMPANY LTD


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BAJAJ ALLIANZ GENERAL INSURANCE

About the company

BAGIC is one of the subsidiary of Bajaj Finserv Ltd with holding of 74% and rest 26% by Allianz S.E.Bajaj Allianz General Insurance Company Limited is a joint venture between Bajaj FinservLtd (demerged from Bajaj Auto Limited in 2008) and Allianz SE. BAGIC received IRDAI certificateof registeration on 2nd May, 2001 to conduct its business.

PRODUCTS

MOTOR INSURANCE HEALTH INSURANCE TRAVEL INSURANCE Two-wheeler Third party/Liability

Only-Motor Insurance Commercial Vehicle Car Insurance

Individual Health Family Health Top-up Health Critical Illness Global Personal Guard Other Health Insurance

Plans

Individual Travel Family Travel Senior Citizen Student Travel Other Travel (Corporate

travel, travel Asia etc)

HOME INSURANCE CYBER SAFE INSURANCE COMMERCIAL INSURANCE House holders package

policy My home insurance Easy house holders

package policy

Individual cyber safeinsurance policy

Property Marine Liability Financial Lines Engineering Energy Employee benefit International Insurance

Solutions


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Investment Rationale

BAGIC growth rate is higher than industry and public sector in terms of gross direct premium,growth rate of 23.7% higher than 16.8% of industry.

BAGIC has higher solvency margin of 276% giving protection to its investors and customers. BAGIC has started making underwriting profit, currently at Rs 293Crs in FY18. BAGIC is 2nd highest in private sector, market share at 8.2%.

Risk

Higher volatility in claim amount which may arise in any year leading to decrease in operatingprofit in some of these segments like fire insurance.

Increase in operating expense will hamper underwriting results, already has negative impacton operating profit.

Catastrophic event may lead to huge claims for company, catastrophic event is a huge risk forthe company.


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INDUSTRY

Indian EconomyIndia’s GDP growth for FY2018 ended low at 6.6% in FY2018 as against 7.1% in FY2017. RBIhowever expects GDP growth to accelerate to 7.4% in FY2019. Economy is expected to recoverthis year post the demonetization in 2016 and Goods and Service Tax (GST).

Global Outlook

Insurance penetration that is percentage of GDP. For non-life, USA has highest penetration whichstands at 4.29% where as India is at 0.77% just above Indonesia. Insurance density is totalpremium to total population. As of 2016 in non-life, USA has maximum insurance density which isUS$2449 where as India is at lowest that is US$13. Lower insurance density means very fewpeople in country takes non-life insurance. Companies has enough opportunity in India becausestill majority of population don’t have non-life insurance.


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Indian Non-Life Insurance Sector OverviewThe size of Indian non-life insurance sector was Rs23.38 Billion as on 31st March 2018. Indiannon-life sector grew at 17.4% CAGR between FY01-17. India was 15th largest market in the worldand 4th largest market in Asia in 2016, behind China, Japan and South Korea. India was also fastestgrowing non-life insurance market over 2011-16.

Market Structure

In non-life industry , there were total of 30 companies as of 31st March 2017.

Multi product Insurers- 4 public sector (National Insurance Company Ltd,The New IndiaAssurance Company Ltd, The Oriental Insurance Company Ltd, United India InsuranceCompany Ltd) and 18 private sector (ICICI Lombard, Bajaj Allianz General, HDFC Ergo,IFFCOTokio, TATA AIG etc)

Single product Insurers-2 public sector (Agriculture Insurance Company of India Limitedand Export Credit Guarantee Corporation of India Limited)and 6 private health insurancecompanies (Apollo Munich Health, Max Bupa Health, Cigna TTK, Aditya Birla Health,StarHealth etc)


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Breakup of Non-Life Insurance Market in India FY18

Strong growth in the automotive industry will be a key driver of motor insurance. Automobilesales in India has increased at 7.01% CAGR between FY13-18 to reach 24.97 million vehicles. InFY18 motor insurance constituted 39.4% of the non-life insurance market in India.

Only 1.5-2% of total healthcare expenditure in India is currently covered by insurance. Grossdirect premium from health insurance reached Rs378.97Billion in FY18 and contributing25.2%.

Rashtriya Swasthya Bima Yojna (RSBY) is health insurance programme for the Indian poor. Itaims to provide health insurance to BPL (Below poverty Line) and their families. Introducing ofhealthcare scheme will increase awareness among people to take health insurance.

Crop Insurance market in India is largest in the world. Over 47.9 Million farmers werebenefited under PMFBY in 2017-18. Government has also increased risk to cover under PMFBYlike crop fires, hailstorms etc.

BAGIC VS INDUSTRY (Gross Direct Premium)

FY14 FY15 FY16 FY17 FY18BAGIC 13% 16% 12% 30.9% 23.7%PrivateSector

15% 10% 13% 35.5% 21.6%

PublicSector

10% 10% 12% 26.3% 12.6%

Industry 12% 10% 13% 30.5% 16.8%

(in Crs) FY14 FY15 FY16 FY17 FY18BAGIC 4516 5230 5832 7633 9445PrivateSector

31994 35149 39701 53805 65424

PublicSector

38608 42514 47717 60218 67785

Industry 70602 77663 87418 114024 133209


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Business of the Company

Qualitative Analysis

A. Distribution Channel

B. Product Mix

New tie-ups during FY18 with HDFCBank, Union Bank, Canara Bank,Karanataka Bank, Bandhan Bank andPunjab National Bank . BAGIC have over60 corporate-Banca Relationships.Maximum policies are sold throughbrokers with 32% in FY18 but itscontribution is coming down from 40%in FY16 while contribution frombancassurance is increasing from FY16to 8% in FY18.

Motor insurance contributesmaximum in BAGIC’s product portfoliowhich is at 44% in FY18 came downfrom 56% in FY16. whereas cropinsurance has contributed from 6% inFY16 to 20% in FY18 due togovernment policy of PMFBY. So, top 3contributors are motor, crop andproperty, liability and engineering.


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C. Technology

(a) EZEE Tab- Using this tab agents can issue or renew motor insurance policies for customers.(b) Insurance on the wallet-Insurance on Go-- It is the one stop shop to purchase and renew, I

intimating and tracking claims and provides easy access to any policy and company related Iinformation.

(c) Claim by direct click- Using this facility customer can submit digital documents through theapp for further assessment and settlement. Customer can receive claim of upto Rs20000within 2 working days.

(d) Virtual Offices and All India women branches- This initiative was started in 2014, 500 virtualoffices in 2015. All india women was started with 30 agents in 2015 it reached 1000 agentswith 30 branches.

Quantitative Analysis

A. Net Written Premium

A. Operating Profit

In fire insurance, fall in operating profit from FY14 to FY18 due to rise in claim amount in FY15(almost double) and FY17.

In marine insurance, in FY15 it was negative due to higher claims and operating expenses.Decrease in operating in FY17 and FY15 was due to fall in premium and rise in claim amount.

Total net premium is growingby 15.37% CAGR. Underpremium collection, Firesegments is growing by 14.76%CAGR, collection from marineis growing at 5.56% andMiscellaneous is growing at2.55% CAGR in last 4 years.


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Miscellaneous is growing at CAGR of 37.89%. Total operating profit is growing at CAGR of25.93%.

B. Profit After Tax

C. Combined Ratio

D. Solvency Margin

BAGIC’s profit after tax is growingat 22.51% CAGR. Profit after tax isgrowing due to growth in premiumand Investment income.

Combined ratio is adding of lossratio and expense ratio. Combinedratios helps to measure theprofitability from its business. Ifratio is less than 100 it meanscompany is earning enoughpremium to cover its underwritingexpenses. From 99.3% in FY16 ithas come down to 92.3% in FY18.

Combined Ratio is (Claim+Commission+ManagementExpenses)/Net premium earned.

Solvency Margin is ratio of actualsolvency margin to requiredsolvency margin, it is the amountby which assets exceed liabilities.Its the measure of how muchassets versus how much it owes, ittells how financially sound aninsurer is and its ability to payclaims. Solvency margin was 196%in FY14 growing to 276% in FY18.


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E. Assets Under Management

F. Net Worth

Asset under Management is thetotal value of policyholder’s andshareholder’s investmentsmanaged by company. AUM ofBAGIC is growing at 20.77%CAGR. AUM has increased from6967Crs in FY14 to 14823Crs inFY18.

BAGIC has not issued anyequity in last 17 years. BAGICis generating healthy andpositive profits which buildsup reserves leading to growthin net worth of 28% CAGR.


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Financials

Revenue Account

Profit and Loss Account

(in Crs) FY14 FY15 FY16 FY17 FY18Premium(net)

3493.06 3831.90 4223.65 4937.05 6058.57

Other Income 473.94 543.21 635.67 752.30 900.95Total 3967 4375.11 4859.32 5689.35 6959.52

ExpensesClaimsincurred

2525.28 2755.99 3053.86 3476.29 4042.57

Commission 135.2 49.24 93.93 35.63 318.07OperatingExpenses

836.27 943.31 1140.71 1361.45 1405.13

Others (1.8) 0.56 1.15 1.5 6.44Total 3494.95 3749.1 4289.65 4874.87 5772.21

OperatingProfit

472.05 626.01 569.67 814.48 1187.31

Transfer toShareholders

account

472.05 626.01 569.67 814.48 1187.31

(in Crs) FY14 FY15 FY16 FY17 FY18Operating Profit 472.05 626.01 569.67 814.48 1187.31Income from

Investments(includingother income)

116.75 158.66 217.73 283.57 193.1

Total 588.8 784.67 787.4 1098.05 1380.41

Provision 1.81 7.65 15.92 19.94 27.50Profit before tax 586.99 777.02 771.48 1078.11 1352.91

Tax 178 214.7 207.24 350.28 431.67Profit after tax 408.99 562.32 564.24 727.83 921.24


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Balance Sheet

(in Crs) FY14 FY15 FY16 FY17 FY18Sources offunds

Share capital 110.23 110.23 110.23 110.23 110.23Reserve and

surplus1554.07 2115.26 2679.48 3407.32 4328.56

Fair valuechangeaccount

- - - 17.08 27.57

Total 1664.3 2225.49 2789.71 3534.63 4466.36

Applicationof funds

Investments-Shareholders

- - 1988.87 2494.78 3080.6

Investments-Policyholders

- - 6945.76 7777.97 10910.09

TotalInvestments

6017.85 7006.93 8934.63 10272.75 13990.69

Fixed Assets 288.7 282.53 273.07 296.56 312.27Deferred tax

asset31.78 45.18 63.36 64.28 53.13

Net currentassets

(4674.03) (5109.15) (6481.35) (7098.96) (9889.73)

Total 1664.3 2225.49 2789.71 3534.63 4466.36


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Peer Analysis

(in Crs) New IndiaAssurance

ICICI Lombard Bajaj AllianzGeneral Insurance

Premium(4yrs CAGR Growth)

14.77% 12.25% 15.37%

Underwriting Result(FY18)

-2524.9 -207.6* 293

Assets UnderManagement

- - 14823

Solvency Margin 154% 205% 276%

Net Worth 15412.29 4541 4466Combined Ratio 119.77% 100.2% 92.3%

Profit After Tax(4 yrs CAGR Growth)

19.07% 13.94% 22.51%

Market Share 15.1% 8.2% 6.3%*approx


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BAJAJ LIFE INSURANCE COMPANY LTD

Jainam Share Consultant Pvt Ltd Sector : Banking & Finance

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BAJAJ ALLIANZ LIFE INSURANCE

About the companyBajaj Allianz Life Insurance Company Ltd (BALIC) is one of the unlisted subsidiary of Bajaj FinservLtd with 74% of holding. The company began its operations in 2001 and today has presence with638 branches. BALIC has 25 individual, 12 group and 13 riders life insurance products.


High solvency margin at 592%, giving protection to its customers and investors. New business premium growth at 28.5% in FY18 higher than industry and private sector. Growing persistency ratio, currently at 77.2% in 13th month.

Risk Factor

Average time taken to settle claim is increasing from 7 days in FY14 to 12 days in FY18,customers may not trust the company.

Profit after tax is reducing at CAGR of 8.56%, due to payment of claims and rising operatingexpenses.

Value of new business after necessary expenses is (18)Crs, lower than its peers.


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INDUSTRYIndian EconomyIndia’s GDP growth for FY2018 ended low at 6.6% in FY2018 as against 7.1% in FY2017. RBIhowever expects GDP growth to accelerate to 7.4% in FY2019. Economy is expected to recoverthis year post the demonetization in 2016 and Goods and Service Tax (GST).

Global Life Insurance Industry

Asia is the largest market for life insurance, accounting for 38% of the premium collected. India’sshare in the global market was 2%. Before the financial crisis in 2008, total premium of theindustry grew at 4% (nominal) CAGR during 2003-07, 6.6% CAGR during 2009-16, 3.5% (real)during 2013-16.

Indian Life Insurance IndustryThe size of Indian life insurance industry is 4.2 trillion in FY17 on the basis of total premiumcollected. Indian life insurance industry is 10th largest market in world and 5th largest in Asia interms of new premium. Total premium has grown at CAGR of 17% from 2001-17, new premiumcontributed 42% of total premium as of FY17. Assets under Management grew at CAGR of 19%during 2001-17 and reached to Rs 30 trillion. Under premium we have New business premiumgrew at CAGR of 9% during 2007-17 to Rs 1.8 Trillion and reported 26% y-o-y growth in FY17.


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LIFE-INSURANCE INDUSTRY OUTLOOK

Penetration rate is total insurance premium as % of GDP. At 3.69%, India ranked 41st in 2017 interms of life insurance penetration at 2.76% and non-life insurance penetration at 0.93%.Penetration rate for life insurance has increased from 2.6% in FY14 to 2.76% in FY17.Insurancedensity is total insurance premium to total population. Of a given country.In terms of density Indiais ranked 73rd in 2017 with overall density at US$73. Life insurance density has increased fromUS$44 in FY14 to US$55 in FY17. So, increasing penetration rate and insurance density, people aremore likely to invest in insurance.

Over the period of FY2013 to FY2018, the new business premium for the industry registered agrowth of 13% CAGR, for private companies the growth was 14% CAGR,the industry grew by 11%in FY2018 v/s 26% growth in FY2017. LICs growth was muted at 8% in FY2018 as against theprivate market growth of 17%. LIC further lost share at 70% in FY2018 from the high of 75% inFY2014, l Private players with a critical Bancassurance mass and the major bank promotedcompanies (i.e. ICICI Prudential, HDFC Life, SBI Life and Kotak) have gained share to move up to20% in FY2018 v/s lows of 14% in FY2014, Market share of other private players was flat around10% in FY2018.


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Industry V/S BALIC

If we compare growth rates, BALIC reports 28.5% growth in new business higher than 17.1% ofprivate sector and 10.7% of industry in FY18. Overall if we see BALIC has reported higher growth inall three segments for FY18 comparing to private sector and industry. Industry reported growth10.7% in FY18 compared to 26.2% in previous year in terms of new business premium.

Growth Drivers:

Gross savings as a % of household savings grew to 62% in FY17 from 42% in FY12. Withinfinancial savings, life insurance contribution was up at 20.7% in FY17 up from 18.8% in FY14.

Overall growth in financial industry, increase in working population with higher disposableincome.

Strong GDP growth- Faster growth in GDP should translate into rising income, more likely ofpeople investing in insurance. India’s robust economy is expected to sustain growth ininsurance premium written.

The life insurance sector current position:

More than Rs. 36,625 crore of deployed capital,32.50 crore In-force policies. Over Rs. 34,07,106 crore of managed assets Investments in infrastructure exceeding Rs 3,70,715 crore Over 11,148 branches More than 20.72 lakh agents 2.67 lakh direct employees and growing significantly.

Particulars INDIVIDUAL RATEDNEW BUSINESS

RATED NEWBUSINESS

NEW BUSINESS

FY18 FY17 FY18 FY17 FY18 FY17PREMIUM AMOUNT

BALIC 1397 1010 1686 1237 4291 3338PRIVATESECTOR

35668 28699 37569 30558 59314 50674

LIC 27802 24519 36083 32400 134552 124396INDUSTRY 63470 53218 73651 62958 193865 175070

GROWTH RATESBALIC 38.3% 40.8% 36.3% 34.9% 28.5% 15.7%

PRIVATESECTOR

24.3% 26.4% 22.9% 26% 17.1% 23.5%

INDUSTRY 19.3% 20.7% 17% 20.8% 10.7% 26.2%

MARKET SHAREPRIVATEINDUSTRY

56.2% 53.9% 51% 48.5% 30.6% 28.9%

LIC 43.8% 46.1% 49% 51.5% 69.4% 71.1%


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Company’s Initiatives

A. Agency transformation

B. Strategies

(a) Reduce dependency on Agency- BALIC has 4.4Crs customers, company has opportunityto tap for selling and cross-selling.(b) Bancassurance- BALIC has unique strategy one to target banks which have tie-up withcompetitors which are not performing well, and two tie-up with small finance banks (SFB)who have niche business areas but with huge branch network.(c) Effective agency management- Targeting high-end customers, products for eachmarket and hiring quality people, segregated marketing strategies etc.(d) Grow mass affluent and above segment- Company is focusing more on higher incomeand higher profile customer.

Shifting CustomerSegmentation-

Nearly 77% of company’scustomers are lowincome and loweducation levels. Theymight not continue withpolicies or ready toaccept marketfluctuations so theychanged their focus tomass affluent and masssegments so they canpay higher premiums.

Upgrading Agents-

With change in customersegmentation nowagents has to accesshigher-class customers.Now agents must havenetworks to bring suchcustomers to company.

Improving quality ofsales manager

Transforming productmix


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Qualitative Analysis

A. Claim Settlement Ratio

Over the years from FY14 to FY18 , claim settlement ratio hasincreased from 97.45% in FY14 to 99.2% in FY17. But averagesettlement time (days) has increased from 7 days in FY14 to 12days in FY18, longer duration will force the customers not to trustthe company. Customer grievances fell by 20%.

B. Persistency

Particulars 2014 2015 2016 2017 2018

13th month 61.6% 67.6% 62.9% 68.2% 77.2%

25th month 48.5% 48.8% 50.9% 51.1% 58.2%

37th month 26.4% 41.5% 42% 43.9% 48.5%

49th month 10.4% 22.1% 37% 38.2% 42.3%

61st month 4% 7.6% 15.6% 31.6% 33.4%

Persistency is used to measure the volume of business that a life insurance company is able toretain without policies being lapsed. As duration of policy increases there are less number ofpolicyholders continuing to pay premium. Persistency ratio for 13th month increased from 61.6% inFY14 to 77.2% in FY18, for 61st month its still lower at 33.4% in FY18 though improved from 4% inFY14 which means less number of policyholders paying premium for 5 continuous years.Persistency indicates policyholders continuing policy without surrender.

Period Claimsettlement

RatioFY18 -FY17 99.2%FY16 98.1%FY15 96.4%FY14 97.45%


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C. Distribution Mix

D. Product Mix

Distribution mix plays important role inreaching maximum customers aspossible to sell company’s policies.Directselling has maximum share of 57%followed by individual agents 27%followed by 7% corporate agents others.BALIC is giving excellent growth fromonline sales of 148% from 23Crs in FY17to 60crs in FY18 in yerms of rated newbusiness premium. BALIC has 638branches and 77097 agents.

Unit Linked has maximum share of 72%in FY18 increased from 51% in FY16,followed by individual participatingpolicies coming down from 42% in FY16to 24% in FY18.


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Quantitative Analysis

A. Gross Premium

B. Net Premium

C. Embedded Value

Total premium accrued for year FY18 is7578.37Crs comparing to 6183.32Crs, growthof 22.56%. Overall growth in premium is6.72% CAGR in last 4 years. The renewalpremium grew by 16% at 3,287 crs in FY2018as compared to 2,845 crore in previous yearas compared to de-growth in FY2017.

Net Premium is after deducting reinsurancepremium from gross premium. Net premiumgrew by 22.8% in FY18. Over the last 4 yearsnet premium has grew by 6.81% CAGR.Growth in gross and net premium issomewhat similar so company is nottransferring that much risk by takingreinsurance.

The embedded value of a life insurancecompany is the present value of futureprofits plus adjusted net worth. Themeasure of consolidated value ofshareholder’s interest in life insurancecompany, represents Present value ofshareholder’s interest in the earningsdistributable from the assets allocated tothe businessafter sufficient allowance for theaggregate risk in business. Embedded valuestands at 11858Crs in FY18 grew by 5.26%comparing to previous year so value createdfor shareholders from company isincreasing.


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D. Asset Under Management

E. Solvency Margin

F. Premium less benefits paid

Asset under Management is the totalvalue of policyholder’s and shareholder’sinvestments managed by company. AUMhas increased from Rs 38780Crs to Rs51970Crs in last 5 years, observed growthof 5.48% in FY18. Increase in value ofAUM means increase in inflow frominvestors and better asset performance.

Solvency Margin is ratio of actualsolvency margin to required solvencymargin, it is the amount by whichassets exceed liabilities. Its themeasure of how much assets versushow much it owes, it tells howfinancially sound an insurer is and itsability to pay claims. BALIC has reallyhigh solvency margin standing at592%, higher than its peers and alsofulfills IRDAI minimum requirement of150%. So, it has enough assets tocover its liabilities.

BALIC is not earning enough premiumeach year to cover claim payments.Premium less benefits paid isnegative that is -13.26Crs in FY17 and-475.17Crs in FY18. So, companyneeds to increase its premiumcollection or transferring risk throughreinsurance to cover benefit amount.


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G. Investment Income

H. New Business Premium

I. Profit After Tax

J. Net Worth

Investment income of BALIC has beenvolatile, down by 22.86% in FY18.From 7458.99Crs in FY15 investmentincome decreased to 747.93Crs inFY16 was mainly due to loss orredemption on sale of investments.

New business premium reportedgrowth of 28.55% in FY18 higher thanmarket growth of 10.7%. Newbusiness premium is growing at13.43% CAGR.

Profit after tax is reducing at CAGR of(8.56%) in last 4 years. It reported itshighest profit of 1024Crs in FY14 (inlast 5 years). Reasons affecting PATare volatility in investment incomeand high surrenders experienced inpast few years by company.

BALIC has not issued any equitycapital in last 10 years and value ofnet worth has increased fromRs5871Crs in FY14 to Rs9218Crs inFY18. BALIC is generating healthyand positive profits which builds upreserves leading to growth in networth of 11.94% CAGR.


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FINANCIALSREVENUE A/C

(in Crs) FY14 FY15 FY16 FY17 FY18

Gross Premium 5843.14 6017.3 5897.31 6183.32 7578.37Reinsurance 67.11 69.27 65.6 61.22 61.07Net Premium 5776.03 5948.03 5831.71 6122.1 7517.30

Income from investments 4914.18 7459 747.93 5372.82 4144.51Other Income 36.92 166.47 85.71 176.9 199.98Total Income 10727.13 13573.5 6665.35 11671.82 11861.79

ExpensesCommission 148.96 206.22 157.40 146.44 203.17

Operating expenses 1346.1 1121.74 1108.63 1056.3 1207.57Others 126.7 99.5 97.05 94.53 117.54Total 1621.76 1427.46 1363.08 1297.27 1528.28

Benefits paid 8477.25 8230.49 4998.26 6170.06 8053.55Bonus paid 4.74 7.41 14.28 29.76 47.94

Change in valuation ofliability in respect of life

policies

(254.78) 3393.26 (150.82) 3631.03 1752.82

Total 8227.21 11631.16 4861.72 9830.85 9854.31

Surplus before tax 514.88 440.55 543.7 479.2Tax 86.53 46.14 60.59 15.71

Surplus after tax 428.35 394.41 483.11 463.49

Transfer to shareholders a/c 487.89 311.44 368.93 349.54Balance for being funds for

future appropriation(59.54) 82.97 114.18 113.95


04-02-2019 33

Profit and Loss A/C

(in Crs) FY14 FY15 FY16 FY17 FY18Amount transferred from

Policyholders a/c639.10 487.89 311.44 368.92 349.54

Income from Investments 540.2 651.97 755.85 772.83 664.82Total 1179.3 1139.86 1067.29 1141.75 1014.36

ExpensesExpenses other than directly

related to insurance10.16 16.92 40.87 54.52 50.31

Contribution to policyholdersa/c

6.94 116.25 43.57 141.87 157.45

Total 17.1 133.17 84.44 196.39 207.76

Profit before tax 1162.2 1006.69 982.85 945.36 806.6Tax 137.59 130.47 103.88 109.11 90.5

Profit after tax 1024.61 876.22 878.97 836.25 716.1

Balance Sheet

(in Crs) FY14 FY15 FY16 FY17 FY18SOURCES OF FUNDSShareholders Fund 5870.83 6749 7631.49 8475.58 9218.23Policyholders Fund

(a) Fair Value change ina/c

67.71 207.61 136.23 615.51 792.63

(b) Policy Liability 33141.54 36534.80 36383.98 39987.15 41722.35Funds for futureAppropriation

183.95 124.41 207.38 321.57 435.52

TOTAL 39264.03 43615.82 44359.08 49399.81 52168.73

APPLICATION OF FUNDSInvestments

(a) Shareholders 5810.48 7186.62 7564.67 7396.07 8490.24(b) Policyholders 11536.22 14437.88 17090.2 20480.24 22090.60

(c) Assets to cover Linkedliability

21287.6 21645.04 19221.47 20838.21 20777.64

(d) Discontinued fund assets 145.49 284.23 231.15(e) Loans 52.69 95.74 144.9 179.64 235.62

(f) Fixed Assets 255.48 227.2 219.8 226.50 237.28

Net Current Assets 176.07 (206.88) (113.1) 279.13 337.35TOTAL 39264.03 43669.75 44359.09 49399.79 52168.73


04-02-2019 34

Receipts and Payments Account

(in Crs) FY14 FY15 FY16 FY17 FY18Cash flow from

Operating(4437.94) (3930.81) (596.88) (1218.88) (2037.69)

Cash flow fromInvesting

4633.85 4237.26 289.84 3878.19 827.39

Cash flow fromFinancing

- - - - -

Free Cash Flow 195.91 306.45 307.04 2659.31 (1210.3)


04-02-2019 35

PEER ANALYSIS

(in Crs) BAJAJ LIFEINSURANCE

ICICIPRUDENTIAL

LIFE

HDFC LIFE SBI LIFE MAX LIFE

ASSET UNDERMANAGEMNT 51970 139532 106603 116260 52237

EMBEDDEDVALUE 11858 18788 15216 19070 7706

TOTALPREMIUM 7578.37 27069 23565 25354 12509

CLAIMSETTLEMENT

RATIO99.2% 97.9% 99.1% 98.4% 98.3%

PERSISTENCY

13th Month25th Month37th Month49th Month61st Month

77.2%58.2%48.5%42.3%33.4%

87.8%78.8%68.9%63.6%54.8%

87%77%71%62%51%

83.03%-

70.02%63.85%58.43%

80%72%62%57%53%

VALUE OF NEWBUSINESS(VNB)

(18) 1286 1280 1390 656

NEW BUSINESSMARGIN(NBM)

12.5% 16.5% 23.2% 16.2% 20.2%

NET WORTH 9218 6884 4749 6530 2699

SOLVENCYMARGIN

592% 252.5% 192% 206% -


04-02-2019 36

BAJAJ FINANCE LTD


04-02-2019 37

Bajaj Finance Ltd

About

Bajaj Finance Ltd is a subsidiary of Bajaj Finserv Ltd. and is engaged in the business of lending. It isa deposit taking Non-Banking Financial Company (NBFC-D) registered with the Reserve Bank ofIndia (RBI). It consists of retail, SMEs and commercial customers. BFL also operates through a100% subsidiary called Bajaj Housing Finance Ltd. which is registered with National Housing Bankas a Housing Finance Company (HFC). BHFL started its operations in financial year 2017-18(FY2018), and all incremental home loans-cum-mortgage business is now done through BHFL.


Low net non-performing assets, currently at 0.38%, protection for investors and customers.

FY14 FY15 FY16 FY17 FY18Net NPA 0.28% 0.45% 0.28% 0.44% 0.38%

Net Interest Income is growing at CAGR 37.08% in last 4 years. Capital Adequacy at 24.71% higher than RBI regulations that is 15%. RoE and RoA

FY15 FY16 FY17 FY18RoA 2.62% 3.06% 3.16% 3.38%RoE 18.71% 21.09% 21.7% 20.46%

Risk Factors

Volatility in interest rates will adversely affect net interest margin and net interest income. NBFC in market is more dependent on debentures and commercial papers in last 5 years. If company cannot control the level of NPA, increases the risk for investors and company is

not able to recover its loans and advances.


04-02-2019 38

INDUSTRY

Public deposits of NBFC increased from US$0.29 Billion in FY09 to US$4.95 Billion ,registering growth of 24%, change in trend where more people are depositing with NBFCs.

The outstanding credit of NBFCs expanded at CAGR of 20% since FY2012. Microfinance hasrecorded the highest CAGR of 49%. MSME finance and loan against property also grew atCAGR of over 40% and 33%, respectively. Housing, auto and infra loans grew moderately(15%+ CAGR), while there has been no growth in gold and construction equipment financebetween the financial years 2012 and 2016.

Until FY17, NBFC’s share in credit is increasing. From 14% share in FY14 to 16% in FY17 andreducing credit share of bank credit from 68% to 63%.

Growing demand of people from NBFC for credit purpose gives opportunity to grow. The number of NBFC’s base in excess of 5 Billion.


04-02-2019 39

Macroeconomy

Recent liquidity crisis on NBFC:

When IL&FS defaulted on payments to SIDBI in August-end, NBFC and HFC were comparedwith IL&FS which made there position in market risky.

Sources of NBFC for borrowing 44% from banks, 33% from mutual funds and 19% fromInsurance companies. Both private and public sector banks almost stopped lending to NBFCsand HFC.

Asset-Liability mismatch in operations of NBFCs, where they borrow for short-term (3-5 years)and lend for long-term(10-15 years) creates more tension in the market.

Rising interest rates affected margins of NBFCs and borrowing became difficult.

RBI’s measures

RBI did announce to inject 40000Crs in November through government securities to meetliquidity issues in market.

State bank of India has also proposed to buy good quality assets worth Rs45000Crs fromNBFCs.


04-02-2019 40


Segments


04-02-2019 41

Growth in each segmentConsumer Lending

FY16 FY17 FY18Consumer Durableand Digital products

a) 192 cities, 9200approx dealer.

b) Deployed12972Crs,registeringgrowth of 29%comparing PY.

c) Financingthrough EMIcard grew by67%.

a) 318 cities, 14100dealers

b) Financed 5.9Mnpurchases vs4.7Mn, growth of28%

c) 6.9Mn EMI cardsin force. Expandedits EMI cardfinancing infashion, travel,insurance andsmall appliances.

d) Gross deploymentin financing bajajmotorcycles and3-wheelers FY17was 4519Crs,growth of 36%.

a) Financed 9.9Mnpurchases against7.2Mn in PY,growth of 38%

b) Unique 12.9MnEMI cards inoperation.

c) Largest financierof Bajajmotorcycles and3-wheelers, grossdeployment of5323Crs.

Lifestyle Products a) Combinedgrowth ofdeployment indigital andlifestyle is 99%.

a) 237000 purchases,growth of 47%from FY16.

b) 7500 counters,2500 clinic tie-upscovered electiveprocedures,financed 30000electiveprocedures.

a) Financed 315000approxtransactions,growth of 33%from PY.

b) Started offering inhealthcaresegment forelective andnon-electiveprocedures.


04-02-2019 42

E-commerce

Personal Loans Crosssell and SalariedPersonal loans

Salaried Home loans

a) Deployed 201Crsfrom 190 sellers.

a) Deploymentsincreased by63% and 75%

a) Deployed 525Crsacross salariedpersonal loans,business loans,SME home loansand loan againstsecurities.

a) It was launched inApril 2016 to shoponline, financedapprox. 167000purchases

b) Personal loansCross sell andsalaried Personalloans deploymentgrew by 56% and25%.

c) Salaried homeloans businessdeployment grewby 137%. Theylaunched its‘Property SearchModel’ to helpcustomers chosehome and getfinanced by BFL.

a) Financed 702000purchases one-commerceplatforms duringgrowth 0f 320%over PY.

b) Personal loanscross-sell andsalaried personalloansdeploymentsdeploymentsgrew by 42% and56% respectively.

SME

FY16 FY17 FY18a) AUM growth of 20%,

5% from SMEmortgage, 77% frombusiness loans and79% fromprofessional loans.

a) AUM growth of 18%,11% from SMEmortgage loans, 30%from business loansand 56% fromprofessional loans.

b) Retail Mortgagebusiness has beenbrought into 100%Direct to customer’to reduceintermediary cost.

a) AUM growth of 19%,3% from SMEMortgage Loans,43% from businessloans and 79% fromprofessional loans.

b) 79% growth from its‘direct to customer’intitative.


04-02-2019 43

Rural Lending

Caters the needs of consumer and MSME consumers in rural market.The Rural MSME businessoffers unsecured and secured loans to self-employed clients in rural markets. Unsecured loans areoffered through Business Loans and Doctor Loans while secured loans are offered as Loans AgainstProperty (LAP).

FY16 FY17 FY18a) Set up branches in

Karnataka,MadhyaPradesh andRajesthan.

b) It launched MSMElending business asa part of rurallending.

c) It disbursed 1,985crore to 4.47 lakhcustomers inFY2016 and AUMstands at Rs1,339crore up from Rs333crs in PY.

a) It has presence in 538location in 7 states

b) AUM of 3072Crs,giving growth of129%.

a) BFL is present in 602locations across 10states at the end ofFY18.

b) AUM ofconsolidatedbusiness is showinggrowth of 100%from 3072Crs inFY17 to 6131Crs inFY18.

Commercial Lending

FY16 FY17 FY18a) The Company’s

ConstructionEquipment (CE)Finance andInfrastructureFinance bookcontracted by 68%and 26%respectively inFY2016. Companyhas made decisionto exit from this 2sectors. BFL hasmade enoughprovision in thesebusinesses in FY16to cover expectedlosses.

a) AUM of 7881Crs,growth of 51%.

b) IPO Financing wasstarted in FY2017.

a) AUM of 12375Crsgrowth of 57% fromprevious year.


04-02-2019 44

Fixed Deposits

FY16 FY17 FY18a) BFL had a fixed

deposit base of2,243 crsexperiencedgrowth of 128%comparing to 983crs in PY, whichcontributed to 6%of the totalborrowings.

a) BFL had a depositbook of 4,128 crs,experiencing growthof 84% comparing PY.Contribution ofdeposit book’s inBFL overallborrowings is 8%.

a) BFL had a depositbook of 7,569crs,experienced growthof 83% comparing PY.Contribution ofdeposits book’s inBFL overallborrowings is 12%.

Partnership and services

FY16 FY17 FY18a) Partnered with

BAGIC and HDFC lifeb) Independent

financial advisers(IFAs) was launchedthis year. This hasgenerated totalbusiness of 150 crsin the first ninemonths after thelaunch through 732IFAs.

a) Currently hasdistribution-partnership with 6 insurancecompanies.

b) BFL has launchedco-branded creditcard distribution withRBL bank.

a) BFL partnered with‘MobiKwik SystemsPvt. Ltd. ’on 8thAugust 2018 byinvesting approx225Crs. BFL hold12.38% approx inequity.

b) Launched digitalisedEMI cards forcustomers inOctober 2017.


04-02-2019 45

Financial AnalysisA. Capital Adequacy

B. Non-Performing Assets

C. Net Interest Income

Non-performing assets are loans oradvances categorized asnon-performing after 90 days ofnon-payment of principal and interest.Net non-performing assets of BFL isvolatile but if we see last 5 years it hasincreased from 0.28% in FY14 to 0.38%in FY18. NPA is less than 0.5% in last 5years so its plus point that company isperforming efficiently.

Net Interest income is calculatedbased on total income less interestand finance charges. Net Interestincome is growing at 37.08% CAGRin last 4 years. This income showsclear picture of earnings from itsmain business that is lending andborrowing.

Capital adequacy is capital to riskasset ratio. BFL has 24.71% ofcapital adequacy in FY18 which isabove 15% according to RBI norms.In last 5 years capital adequacy isincreasing that is from 19.14% inFY13 to 24.71% in FY18. Tier-1capital adequacy is 19.68%, tier-1capital can absorb losses withoutcompany being cease its operations.Higher capital adequacy meanshigher protection, stability andefficiency in company.


04-02-2019 46

D. Return on Assets

E. Profit after Tax

F. Receivables Under Financing Activity

Return on assets is the returncompany generates from its assetsthat is loans and advances,securities etc. ROA has increasedfrom 2.62% in FY15 to 3.38% inFY18. We can conclude withgrowth in earnings from its assets.

Profit after tax is growing at38.52% CAGR in last 4 years. Itindicates company is operatingefficiently and generatingadequate revenue to cover allexpenses like provision, tax etc.

Non-Current receivables fromfinancing activity are increasing atCAGR of 35.91%.and currentreceivables are increasing at39.29% CAGR. We can saycompany’s loan book is showingexcellent growth.


04-02-2019 47

Financials


(in Crs) FY14 FY15 FY16 FY17 FY18Income fromoperations

4031.42 5381.8 7304.31 9,966.71 13,442.04

OtherIncome

41.91 36.48 79.35 25.48 23.87

Total Income 4073.33 5418.28 7383.66 9992.19 13465.91

Expenditure

Employeebenefitexpense

340.81 450.73 629.63 931.67 1419.59

Finance Cost 1573.24 2248.27 2926.85 3803.71 4634.33

Depreciation 29.29 35.6 56.34 71.17 102.07

Loan lossesand

provision

257.81 384.56 542.85 803.89 1045.19

Otherexpenses

781.12 942.17 1263.31 1564.34 2168.53

TotalExpense

2982.17 4061.33 5418.98 7174.78 9369.71

Profit beforeTax

1091.16 1356.95 1964.68 2817.41 4096.2

Tax 372.15 459.07 686.05 981.03 1422.09Profit after

tax719.01 897.88 1278.63 1836.38 2674.11


04-02-2019 48

Balance Sheet

Cash Flow Statement

(in Crs) FY14 FY15 FY16 FY17 FY18EQUITY ANDLIABILITY

Shareholdersfunds

3990.86 4799.71 7426.76 9600.26 16545.65

Non-CurrentLiabilities

10645.58 18561.36 25977.2 34686.45 47532.86

CurrentLiabilities

9981.56 9418.7 13052.64 19443.8 22745.83

TOTAL 24618.00 32779.77 46456.6 63730.51 86824.34

ASSETSNon-Current

Assets14323.89 18821.55 25905.85 33585.43 49043.72

CurrentAssets

10294.11 13958.22 20550.75 30145.08 37780.62

TOTAL 24618.00 32779.77 46456.6 63730.51 86824.34

(in Crs) FY14 FY15 FY16 FY17 FY18CASH FLOW

FROMOPERATING

(6086.57) (7064.17) (9791.88) (10438.95) (20461.39)

CASH FLOWFROM

INVESTING

(95.81) (360.06) (764.61) (3046.76) 971.17

CASH FLOWFROM

FINANCING

6542.82 6867.08 11656.2 12513.43 19503.28

FREE CASHFLOW

360.44 (557.15) 1099.71 12513.43 19503.28


04-02-2019 49

Peer Analysis

BAJAJFINANCE

CAPITAL FIRST HDB SHRIRAMTRANSPORTFINANCE

COMPANY LTDROA 3.38% 1.5% 2.39% 1.78%ROE 20.46% 14.57% 16.46% 13%NII

(4yrs CAGRGrowth)

37.09% 55.93% - 17.87*

NNPA 0.38% 1.62% 0.85% 2.83%CAPITAL

ADEQUACYTier-1Tier-2

24.71%

19.68%

18.88%

12.32%

17.94%

13.22%4.72%

16.89%

PAT(4 yrs CAGRGrowth)

38.52% 57.88% 46.04% -5.24%

*Last 3 years


04-02-2019 50

BAJAJ HOUSING FINANCE LTD

Bajaj Housing Finance Ltd earlier known as Bajaj Financial Solutions Ltd was incorporated assubsidiary of Bajaj Finserv Ltd (BFS) on 13th June 2008. The name of company was changed on14th November 2014. BHFL was acquired by Bajaj Finance Ltd from BFS in December 2014. BajajHousing Finance Ltd is 100% owned subsidiary of Bajaj Finance Ltd. BHFL is registered withNational Housing Bank (NHB) as a Housing Finance Company. Its started its operations in financialyear 2017-18, all incremental mortgage business is being done in this company. Bajaj Financialsecurities Ltd is wholly owned subsidiary of BHFL.

BHFL has following business segments (a) Home Loans (b) Loan against property and lease rentaldiscounting (c) developer financing. It also offers home loans and loan against property to ruralindividual and MSME customers.

Financial Summary

(in Crs) FY17 FY18Total Income 3.73 154.63

Interest and FinanceCharges

0.35 49.6

Net Interest Income 3.38 105.03Operating Expenses 2.72 50.23

Pre-Provisioning operatingprofit

0.66 54.8

Loan losses and provisions 0 15Profit before tax 0.66 39.8Profit after tax 0.6 27.37


04-02-2019 51

Consolidated Financial Statements (Bajaj Finserv Ltd)

Balance Sheet

FY14 FY15 FY16 FY17 FY18EQUITY AND LIABILITYShareholders Funds 9311.15 10964.64 13391.12 15828.77 20747.09Funds for FutureAppropriation

183.95 124.41 207.38 321.56 435.52

Minority Interest 3541.51 4225.54 5876.68 7200.83 11047.02Non-CurrentLiabilities

23242.51 34813.91 44346.42 55459.69 70157.66

Current Liabilities 38112.02 38111.31 40139.9 49812.3 56738.85TOTAL 74391.14 88239.81 103961.5 128623.15 159,126.14

ASSETSNon-CurrentInvestments

41186.47 49382.64 59679.1 70973.24 91449.69

Current Investments 33204.67 38857.17 44282.4 57649.91 67676.45TOTAL 74391.14 88239.81 103961.5 128623.15 159126.14


04-02-2019 52


(in Crs) FY14 FY15 FY16 FY17 FY18Total

Revenue6026.01 7590.38 20533.62 24507.72 30599.41

ExpensesClaimsIncurred

- - 8066.4 9676.11 12144.05

Finance Cost 1561.87 2229.58 2876.95 3716.28 4551.43Loans Losses

andProvisions

258.83 384.56 542.85 803.89 1045.19

OtherExpenses

1303.7 1730.09 5243.37 5386.91 6548.57

Profit BeforeTax

2901.61 3246.15 3804.05 4924.53 6310.17

Tax 710.49 841.94 1029.51 1474.82 1970.29Profit After

Tax2191.12 2404.21 2774.54 3449.71 4339.88

TaxDebit/Creditpertaining toearlier years

(0.06) 4.94 - - -

TaxDebit/Creditpertaining toearlier years

of JointVenture

(0.13) 0.02 0.02 - -

MinorityInterest

646.85 719.38 911.29 1187.79 1598.44

Profit For theyear

1544.08 1689.79 1863.27 2261.92 2741.44


04-02-2019 53

SCENARIO ANALYSIS

Finding Multipliers

30th April 2018(in Crs) Market CapBajaj Finserv 87228Bajaj Finance 110265

Holding 54.99%Value of Bajaj Finance in Bajaj Finserv 60635

Remainder (Insurance Mcap) 26593100% Value of Insurance Mcap 35936

BAGIC (half of Total Insurance Mcap) 17968BALIC (half of Total Insurance Mcap) 17968

BAJAJ ALLIANZ LIFE INSURANCE COMPANY LTD

BEST NEUTRAL WORSTCurrent Embedded Value (FY18) 11858 11858 11858

Growth Rate(CAGR Last 5 years) 9% 9% 9%

FY21E Embedded Value 15356 15356 15356Mcap/EV Multiplier 1.51 1.2 1

Market Cap 23188 18427 15356Bajaj Finserve Holding to BALIC 74% 74% 74%Value of BALIC to Bajaj Finserv 17159 13636 11363

AmountMcap 17968EV 11858Mcap/EV 1.51

Current Embedded Value in FY18 is 11858Crs, we assumed CAGR growth of 9% which wasexperienced in last 5 years. Using growth rate, we get FY21E embedded value.

Using above calculations, we have used actual Mcap/EV Multiplier of 1.51 in best scenario andto be on the conservative side, we decrease Mcap/EV multiplier in Scenario neutral andScenario worst.

Multiplying embedded value with Mcap/EV multiplier we get Mcap of BALIC. Bajaj Finserv holds 74% in BALIC, so contribution in Bajaj Finserv’s Mcap will be 17159Crs in

best sceanrio.


04-02-2019 54

BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LTD

(in Crs) BEST NEUTRAL WORSTFY18 BVPS 405 405 405Growth Rate(CAGR 5 years) 29% 29% 29%

FY21 BVPS 869 869 869P/BV Multiplier(x) 4.02 3.5 3.25BVPS*Multiplier 3493 3041 2824

No of Equity Shares 11.023 11.023 11.023Market Cap 38503 33521 31129

Bajaj Finserv holding in BAGIC 74% 74% 74%Value in BAGIC 28492 24805 23035

(in Crs) AmountMcap(Crs) 17968

Price (Mcap/No ofEquity Shares) 1630

P/BV(x) 4.02

Current BVPS (FY18) is 405, actual CAGR growth in BVPS is 29% in last 5 years, we haveassumed the same in all scenarios. We get FY21E BVPS using 29% growth rate.

Using above calculation, we found P/BV multiplier that is 4.02 which we used in best scenario,and to be on the conservative side, we decrease Mcap/EV multiplier in neutral scenario andworst scenario.

If we multiply P/BV with FY21E BVPS we get price, then multiplying with no of equity shareswe get Mcap of BAGIC.

Bajaj Finserv holds 74% in BAGIC, so contribution in Bajaj Finserv’s Mcap will be 28492Crs inbest scenario.

BAJAJ FINANCE LTD

P/BVFY16 5.07FY17 6.69FY18 6.15TTM 8.69

Average 6.65

P/BVBajaj Finance 8.69

Shriram Transport 1.97CAPF 2.22

M&M Financial 2.72Average 3.9


04-02-2019 55

BEST NEUTRAL WORSTFY18 BVPS 288 288 288

Expected growth 34% 34% 34%FY21E BVPS 693 693 693

P/BV Multiplier(X) 5.5 5.275 5BVPS*Average Multiplier 3811 3656 3465

No of Equity Shares 57.8 57.8 57.8Market Cap 220276 211317 200277

Bajaj Finserv Holding to BF 54.99% 54.99% 54.99%Bajaj Finance Market Cap in Bajaj

Finserv 121130 116203 110132

Current BVPS in FY18 is 288. We have taken 34% as growth rate which is the actual CAGRgrowth in BVPS in last 5 years.

P/BV has found as average of Industry and company’s BVPS which comes as 5.275, we havetaken three scenarios 5.5 as best. 5.275 as neutral and 5 in worst scenario.

Multiplying BVPS with P/BV we get price, then multiplying with no of equity shares we getMcap of Bajaj Finance.

Bajaj Finserv holds 54.99%, so contribution in Bajaj Finserv’s Mcap will be Rs121130Crs in bestscenario.

BAJAJ FINSERV (COMBINING COMPANIES)

BEST NEUTRAL WORSTBajaj Finance 121130 116203 110132

BALIC 17159 13636 11363BAGIC 28492 24805 23035TOTAL 166781 154644 144530

Market Cap 95637.62 95637.62 95637.62Return 74% 62% 51%

Combining Mcap of all companies we get total Mcap, comparing with current Mcap of BajajFinserv’s we expect return in the range of 51% to 74%.


04-02-2019 56

Conclusion

RecommendationBajaj Finserv Ltd is the parental company of Bajaj Life Insurance Company Ltd, Bajaj GeneralInsurance Company Ltd and Bajaj Finance Ltd.

BAGIC caters the general insurance for its customers. BAGIC is growing at higher growthrate(23.7%) than industry (16.8%). Solvency margin is 276% which is higher comparing to its peers,it gives safety to its investors and customers. It made underwriting profit in FY15,FY16 and FY18 sowe can say general insurance is going smooth, stable and can sustain. In private sector it marketshare stands second after ICICI Lombard. Increase in Bnacassurance tie-ups like HDFC bank, PNBand Bandhan Bank etc gives advantage to serve large number of customers. Combined Ratio iscurrently at 92.3% which means company is able to cover its underwriting expenses. BAGIC hashuge opportunity to grow through motor insurance because of growth in Automobile sector andby participation in PMFBY helps to grow in crop insurance.

BALIC caters life insurance for its customers. BALIC has high solvency margin at 592% which ishigher than its peers.Company has growing persistency ratio 77% for 13th month nut still lower for51st month at 33.4%. BALIC has a disadvantage of not being bank promoted life insurancecompany like HDFC Life, ICICI Prudential etc. BALIC’s PAT is reducing at CAGR of 8.56%, due topayment of claim and rising operating expenses. BALIC is performing well in New businesspremium as its growth is 28.5% in FY18 higher than industry and private sector.

General and Life Insurance company have risk of catastrophic event which may lead to huge claim.Rising of operating expenses and volatility in investment income, interest affect the profitability ofcompany.

BFL is deposit accepting NBFC. BFL has excellent net NPA at 0.38% which is much lower than itspeers. RoA has increased from 2.62% in FY14 to 3.38% in FY18, RoE is growing from 18.71% inFY14 to 20.46% in FY18.It has maintained its capital adequacy according to RBI guidelines of above15%, currently at 24.71%. PAT is increasing at CAGR of 28.52%. BFL is showing continuous growthin each of the segments.Its loan book is also increasing at 35.91% CAGR in last 4 years.

If we see combine valuation of all companies, expected return of Bajaj Finserv in best scenario is74% and 51% return in worst scenario. So we consider this company as good investmentopportunity.

We recommend our investors to “BUY” the stock at CMP Rs6009.8, currently trading at TTMP/E31.2 with potential upside of 74% with horizon of 3 years.


04-02-2019 57

Sources Annual Report Investor Presentation IBEF Ace Equity DRHP

Research Analyst Details:

Name Designation Email IdTejas Jariwala Research Head [email protected] Zaveri Sr. Research Analyst [email protected] Patel Sr. Research Analyst [email protected] Agarwal Assistant Research Analyst [email protected] Pareek Assistant Research Analyst [email protected] Patel Assistant Research Analyst [email protected] Modi Assistant Research Analyst [email protected] Nalbandh Sr. Research Executive [email protected] Patel Jr. Research Executive [email protected] Bakshi Jr. Research Executive [email protected]


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Full Form and Glossary

Abbreviation Full FormBFL BAJAJ FINANCE LTDBAGIC BAJAJ GENERAL INSURANCE COMPANT LTDBALIC BAJAJ LIFE INSURANCE COMPANY LTDBHFL BAJAJ HOUSING FINANCE LTDFII FOREIGN INSTITUTIONAL INVESTORSEV ENTERPRISE VALUEM/Cap MARKET CAPITALIRDAI INSURANCE REGULATORY AND DEVELOPMENT

AUTHORITYRSBY RASHTRIYA SWASTHYA BIMA YOJANABanca BANCASSURANCECAGR COMPOUNDED ANNUAL GROWTH RATEPMFBY PRADHAN MANTRI FASAL BIMA YOJANAPAT PROFIT AFTER TAXAUM ASSETS UNDER MANAGEMENTGST GOODS AND SERVICE TAXLIC LIFE INSURANCE CORPORATION OF INDIASFB SMALL FINANCE BANKSHFC HOUSING FINANCE COMPANYROA RETURN ON ASSETSROE RETURN ON EQUITYNPA NON-PERFORMING ASSETSNBFC NON-BANKING FINANCIAL COMPANIESMSME MICRO SMALL MEDIUM ENTERPRISENHB NATIONAL HOUSING BANKPY PREVIOUS YEARLAP LOAN AGAINST PROPERTYSME SMALL MEDIUM ENTERPRISEIFA INDEPENDENT FINANCIAL ADVISERSBVPS Book Value per Share


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Report Gallery

Reliance ETFJunior BEES

APL Apollo Tubes Ltd Persistent System Ltd Reliance ETF Junior Bees

Lux Industies Ltd Maruti Suzuk India Ltd BSE Ltd

Crompton Greaves ConsumerElectricals Ltd CCL Products(India) Ltd Narayan Hrudayalaya

Mahindra CIE Greenply Insustries Ltd Indian Energy Exchange

KCP Tciexpress Hotels

https://sensibleinvestingblog.files.wordpress.com/2018/06/narayan-hrudayalaya.pdf

https://sensibleinvestingblog.files.wordpress.com/2018/08/mahindra-cie.pdf

https://sensibleinvestingblog.files.wordpress.com/2018/08/greenply-industries.pdf

https://sensibleinvestingblog.files.wordpress.com/2018/06/iex-report.pdf

https://sensibleinvestingblog.files.wordpress.com/2018/05/kcp-ltd.pdf

https://sensibleinvestingblog.files.wordpress.com/2018/05/tci-express1.pdf

https://www.slideshare.net/KARANAGARWAL32/hotel-sector-111278681


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DisclaimerResearch Analyst Details

Name: Riva Patel Email Id: [email protected] Ph: +91 0261-6725518

Analyst ownership of the stock: No

Details of Associates: Not Applicable

Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their)personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is orwill be directly or indirectly related to the specific recommendation(s) or views contained in this research report.

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SEBI (Research Analyst) Regulations 2014, Registration No. INH000006448

The views expressed are based solely on information available publicly and believed to be true. Investors are advisedto independently evaluate the market conditions/risks involved before making any investment decision.

This report is for the personal information of the authorized recipient and does not construe to be any investment,legal or taxation advice to you. This report should not be reproduced to any other person in any form. This documentis provided for assistance only and is not intended to be and must not alone be taken as the basis for an investmentdecision. Jainam Share Consultants Pvt. Ltd. or any of its affiliates or employees shall not be in any way responsible forany loss or damage that may arise to any person from any inadvertent error in the information contained in thisreport. Neither Jainam Share Consultants Pvt. Ltd., nor its employees, agents nor representatives shall be liable forany damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits thatmay arise from or in connection with the use of the information. Jainam Share Consultants Pvt. Ltd. or any of itsaffiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matterpertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particularpurpose, and non-infringement.

The recipients of this report should rely on their own investigations. Jainam Share Consultants Pvt. Ltd. and/or itsaffiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in thisreport. Jainam Share Consultants Pvt. Ltd. has incorporated adequate disclosures in this document. This should,however, not be treated as endorsement of the views expressed in the report. We submit that no material disciplinaryaction has been taken on Jainam Share Consultants Pvt. Ltd. by any regulatory authority impacting Equity ResearchAnalysis.

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