IIFL Capital has reinstated coverage on Bajaj Finserv with an ‘Add’ rating and a 12-month target price of Rs 1,900 per share. This implies about 5% potential upside for the stock from current levels on the back of stong growth outlook. According to IIFL Capital, “the insurance subsidiaries are well-positioned to leverage on the structural growth stories of the underpenetrated insurance markets.”
IIFL Capital on Bajaj Finserv: Well-positioned to leverage growth
The IIFL Capital report stated that Bajaj Finserv’s insurance arms have been able to achieve above-industry premium growth despite maintaining healthy market share. They believe, “the insurance subsidiaries are well-positioned to leverage on the structural growth stories of the underpenetrated insurance markets.”
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They expect Bajaj Finance to grow its EPS at 24% CAGR between now and FY27. The report added that “after applying a 20% holdco discount to all the three assets plus the businesses of Health, Markets and AMC, which may provide future optionality, we see a 5% potential upside to the stock. Bajaj Finance’s implied holdco discount in Bajaj Finserv stands at 26% — below the 8-year average of 28%.”
Outlook for Bajaj Alliance General Insurance
IIFL Capital expects Bajaj Alliance General Insurance to deliver 16% GDPI CAGR over FY25-FY27, potentially driven by healthy traction in the Health and Commercial business lines. They expect “combined ratio (reported) to improve by 230bps over the same period, driven by an improvement in loss ratios, particularly in the Motor and Health LOBs.”
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The focus on profitable growth for Bajaj Alliance Life Insurance is another factor to watch, according to IIFL Capital. The strong 31% growth in terms of Individual Rated New Business (IRNB) premium is “much faster than the overall industry/private players at 12%/16%.” They believe that the Life Insurance business “has renewed focus on driving profitable growth through a higher share of traditional products in business mix.”
That apart, a recovery in Bajaj Finance’s earnings is also expected to provide positive impetus to Bajaj Finserv’s growth potential. The Bajaj Finserv is down 1.5% intra-day. Over the last 1 month, the share price of Bajaj Finserv is down nearly 3%.
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