Buy Bajaj Finserv; target of Rs 690: Sharekhan

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Buy Bajaj Finserv; target of Rs 690: Sharekhan

Sharekhan is bullish on Bajaj Finserv and has recommended buy rating on the stock with a target of Rs 690 in its May 18, 2011 research report.

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Sharekhan is bullish on Bajaj Finserv and has recommended buy rating on the stock with a target of Rs 690 in its May 18, 2011 research report.

"Bajaj Finserv reported a robust 99% year on year (YoY) growth in its net profits to Rs873 crore for Q4FY2011. This was mainly driven by the profit from the life insurance business (Rs935 crore was transferred from policy holder's account as per the Insurance Regulatory and Development Authority [IRDA] norms) and one off income from surplus on pre payment of sales tax. Nevertheless, the income from operations showed a two fold increase on a Y-o-Y basis to Rs382 crore contributing to an approximately 90% growth in the operating profit. However, the Y-o-Y growth figures are not strictly comparable due to the consolidation of Bajaj Finance Ltd (BFL)'s numbers, which became its subsidiary in Q2FY2011."

"The growth in profit (99% YoY) was mainly driven by the life insurance business as Rs935 crore was transferred from the policy holder's account as against Rs524 crore during Q4FY2010. There was an exceptional income of Rs139 crore from the pre payment of sales tax and adjusting for that the profits would have grown by 68% YoY. The operating profit of the company grew by 90% YoY and 245.5% quarter on quarter (QoQ) to Rs1,152 crore. However, the Y-o-Y growth figures are not strictly comparable due to the amalgamation of Bajaj Finance Ltd during Q2FY2011."

"Bajaj FinServ has reported a strong set of numbers for FY2011 aided by the sturdy performance of all the key segments (excluding general insurance). The life insurance business has endured the changes in the regulatory framework by rationalising its expenses and achieved a calibrated growth. However, due to continued ambiguity relating to the Reserve Bank of India (RBI)'s circular on transfer of shares from Indian residents to non residents, we continue to value Bajaj FinServ on the average of the two target prices ie the one arising out of factoring in the potential upside from the RBI circular and the other arrived at by excluding the impact of the circular on the company's valuations. We have revised our sum of the parts (SOTP) based target price upwards to Rs 690 due to (a) rollover of valuation to FY2013 estimates (b) increase in the valuation multiple for BFL to 1.5x in line of prevailing multiples (c) reduction in holding company discount for BFL and (d) reduction in new business achieved profit (NBAP) margin assumption for the insurance business. We maintain our Buy recommendation on the stock with a price target of Rs 690," says Sharekhan research report. 

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