Bajaj Finserv Set to Gain from Improved Profitability in Insurance Business, Says Jefferies
Jefferies has initiated coverage on Bajaj Finserv Ltd. with a ‘Buy’ rating and a target price of Rs 2,240 apiece, implying a 24% potential upside. The brokerage firm regards Bajaj Finserv as a ‘grooming financial venture’ that is set to benefit from lower interest rates and improved profitability in its insurance business.
Improved Profitability in Insurance Business
Bajaj Finserv is the holding company of the financial business and is well-positioned to gain from the improving profitability in its insurance business. The company’s insurance arm, Bajaj Allianz, is expected to grow at a rate of 15% CAGR in premiums over the financial year 2025 and 2028, with its combining ratio improving to 101%. This is expected to drive growth in Bajaj Finserv’s profitability and contribute to its overall upside.
Growth in New Ventures
Bajaj Finserv is also investing in new businesses like healthcare, mutual fund, and technology, which are expected to add option value to the company. Although these businesses are still incurring losses due to lower scale, Jefferies believes that the opportunities in these sectors are large and the company can leverage them through execution.
Core Earnings Growth
Jefferies has estimated that Bajaj Finserv will likely grow its core earnings at 22% CAGR, driven by its lending and non-lending platforms. The company is relatively insulated from economic cycles, which is expected to support its growth momentum. Bajaj Finserv’s auto business wing, Bajaj Auto Ltd., is also expected to see upside due to lower credit costs.
Outlook for Bajaj Finance
Bajaj Finserv owns a 51% stake in Bajaj Finance, which is one of India’s best-run non-banking financial services companies. Jefferies has rated Bajaj Finance with a target price of Rs 1,100 apiece, implying a 24% upside from the current price. The brokerage firm expects Bajaj Finance to see 23% CAGR in loans over the financial year 2025 and 2028, driven by a fall in interest rates.
Outlook for Bajaj Allianz
Bajaj Finserv owns a 74% stake in Bajaj Allianz, which is expected to increase to 75% as the insurance business sells stakes. Jefferies expects Bajaj Allianz to grow at a rate of 15% CAGR in premiums over the financial year 2025 and 2028, with its profit growing at 14% CAGR. The company’s life insurance wing, Bajaj Allianz Life Insurance, is taking steps to improve its profitability through a combination of portfolio change and better pricing of unit-linked insurance plans.
Risks and Challenges
The only risk for Bajaj Finserv is aggressive expansion from Jio Financial Services and competition from public-sector units. However, Jefferies believes that the company’s strong execution and diversified business model will help it navigate these challenges and achieve its growth targets.
Overall, Jefferies’ initiation of coverage on Bajaj Finserv with a ‘Buy’ rating and a target price of Rs 2,240 apiece is a positive development for the company. With its improved profitability in the insurance business, growth in new ventures, and strong core earnings growth, Bajaj Finserv is well-positioned to achieve its growth targets and deliver value to its shareholders.
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