Bajaj Finserv: Better year ahead for life insurance

Momentum in lending, general insurance business to continue

Bajaj Finserv's March quarter consolidated results lack spark but things seem set to improve in the current year.

To begin with, the 38 per cent year-on-year increase in new business premium (NBP) to Rs 1,127 crore in the life insurance business appears exciting. But this comes after NBP contracting for four quarters (starting from the March 2014 quarter). NBP had fallen 31 per cent in the year-ago quarter.

The profit of this business was also impacted by a five per cent year-on-year fall in renewal premium (about 52 per cent of gross written premiums or GWP) to Rs 1,252 crore. Thus, net profit of the life insurance subsidiary fell 18.8 per cent YoY to Rs 559 crore in the quarter.

The management expects FY16 to be a better year for life insurance business versus FY15 on both revenue and profitability fronts. Analysts, too, endorse this view, as most of the issues such as regulatory changes and discontinuance of the bancassurance tie-up with Standard Chartered Bank are largely behind the company. Recent norms on opening the bancassurance channel enhance the prospects of a tie-up with banks and could be a positive.

The general insurance business continued to witness a healthy growth in GWP to Rs 1,465 crore, up 15.5 per cent year-on-year. Healthy traction in the retail health and motor insurance segments fuelled growth in the quarter. This, along with a 12.7 per cent increase in investment income to Rs 177 crore, aided net profit growth of the general insurance subsidiary. This was up 42.6 per cent year-on-year to Rs 144 crore. Improvement in the combined ratio (claims and expenses divided by premium income) from 98.6 per cent to 95.4 per cent was driven by a weak claims ratio and reflects healthy profitability of the business.

Bajaj Finance, the lending business of Bajaj Finserv, also posted healthy numbers. While net interest income grew  a strong 28.4 per cent to Rs 833 crore, net profit grew 26.9 per cent to Rs 231 crore. Asset quality continued to be very healthy, with gross non-performing assets (NPA) ratio of 1.5 per cent and net NPA at 0.45 per cent. The upcoming qualified institutional placement of Rs 1,400 crore (sometime in FY16) will strengthen its capital adequacy ratio to over 20 per cent from 18 per cent at present.

In this backdrop, Bajaj Finserve's consolidated net profit stood at Rs 707 crore. Though it was flat on a year-on-year basis (due to fall in life insurance profits), it was broadly in-line with Bloomberg consensus estimate of Rs 709 crore.

Management remains confident of delivering good results in FY16. While most analysts polled by Bloomberg in 2015 remain positive on Bajaj Finserv, their average target price of Rs 1,588 indicates upside potential of about 10% from Wednesday's closing price of Rs 1,450.