ICICI Direct's research report on Bajaj Finserv
Bajaj Finserv reported a steep fall in earnings due to lower premium accretion coupled with surge in Covid related contingent provision & MTM losses on equity investment. Consolidated topline was flat at 2% YoY to Rs 13294 crore, primarily led by slower traction in premium accretion in insurance business that was offset by healthy traction in lending business. Bajaj Finance, lending arm, made a contingent provision of Rs 900 crore amid Covid-19, while insurance business took a MTM hit of Rs 768 crore on equity investment, led by steep decline in value of equity market. This has led to a 63% YoY decline in PBT to Rs 793 crore. Resultantly, consolidated PAT came at Rs 194 crore, down 77% YoY. Excluding the provision for Covid-19, PAT would have been Rs 1000 crore.
Outlook
Management’s focus to remain profitable on underwriting basis rather than investment income provides confidence. Factoring the changed scenario, we cut our earnings estimates by ~18% for FY22E. Lower growth & higher uncertainty on asset quality warrant being cautious in near term till clarity on lockdown and moratorium behaviour emerges. Hence, we downgrade the stock to HOLD with revised target price of Rs 4800/share, based on SOTP valuation, implying a multiple of ~16x on FY22E consolidated earnings.
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