Volatile mkt has Bajaj FinServ push its QIP plan to next yr

In an interview to CNBC-TV18, Sanjiv Bajaj, managing director, Bajaj Finserv talks about his company’s strong third quarter results. He also breaks down the growth that has come in from its three main businesses – Bajaj Finance, general insurance and life insurance.

Even though the company has adequate capital, Bajaj says the company has placed its QIP plans on hold for now. "Market volatility has made us push our QIP plans to next year," he says.

Below is an edited transcript of his interview. s for more.

Q: Take us through the numbers? How are the margins looking this time around?

A: Bajaj Finserv had a very strong quarter at a consolidated level. Are PAT has gone up from Rs 107 to Rs 170 crore. Our gross revenues which were about Rs 3,500 crore, last year Q3 are marginally down to Rs 3,359 crore.

Bajaj Finserv has three main businesses; the first is Bajaj Finance which is our lending business. Here we have seen the PAT go up from Rs 76 to Rs 120 crore, a massive jump over 50%. This has been supported by our disbursals going up from about Rs 2,700 crore to over Rs 4,600 crore. In general insurance, our PAT has gone up from Rs 35 crore to Rs 60 crore again, so over a 70% growth over there.

Our topline gross premiums went up from Rs 675 crore to Rs 775 crore. The third business is the life insurance business. Life insurance business as an industry and for us has seen muted growth. We have seen a decline in numbers over the last year or so after the regulatory changes that took place in September 2010.

The good news is that the rate of decline has dropped so our new business premium of around Rs 650 crore has a decline of only 21% compared to Q3 last year versus nearly a 37-38% decline in the first and second quarter of this year. If you see for our nine months, month-on-month (MoM) we have seen a growth in our new business premium. The result of this has been that the shareholders profit has moved up from Rs 43 crore to about Rs 63 crore or so.

The overall profit of the company where there is also a profit that the policyholders make that has been by and large the same. It is Rs 283 crore versus Rs 300 crore last year. A significant part of this policyholders profit will come to shareholders at the end of the year. That is why the shareholders profit in this quarter and in the first two quarters also is a much smaller number.

Overall in our bottomline we have seen very strong growth in Bajaj Finance and general insurance and it has been stable in the life insurance business. The topline in the first two businesses have grown very well.

Q: In terms of demand, last quarter you had said that going forward we could see some slowdown in both the consumer and the auto finance business?

A: Fortunately, I have been proven wrong over there. We have continued to see very strong growth in Bajaj Finance whether it’s on the consumer side or on the auto side and this surprises us as well. It just shows the resilience that our domestic economy has. I do hope now that we start seeing the interest rate reversal from the RBI sooner than later, so that we may just skip this entire slow growth period that I was expecting and continue with strong growth in coming quarters.

But in the absence of any rate cuts from RBI, I would assume the next quarter or two we will see growth at where we are maybe even a little slower, especially, in the consumer lines. This is what I would conservatively say, but in the last couple of quarters I have been pleasantly proven wrong.

Q: The decline in the new business premium in the life insurance business is again being seen. When do you see that really reversing? How much is ULIPs a component of your total portfolio?

A: ULIPs would be about 30% of our total portfolio. While commissions there have come down, from a policyholder point of view they are great products right now. At the same time for longer-term savings we have traditional products there as well. It’s a question of matching the right product for a particular consumer need, this is important.

As far as when growth will come, we think the drop has started slowing down which is very visible now in this Q3. I would expect by say Q2 or latest Q3 of the next financial year to start seeing growth coming. The two major things over here that should lead the growth, one is all the work that’s happening in the individual agency channel for us and for the industry to help make these agents more productive.

These were the agents who saw a huge drop in commissions when commissions in ULIPs were reduced. As they come back, we will see this reversal in slowdown happening. The second major move is that the IRDA has sent out a draft paper on banks requiring more than one insurance company products to be sold through their network. For example, today banks sell multiple mutual funds, but they sell insurance of only one life company and one general company.

So, IRDA wants to broad base this. As and when that happens for somebody like Bajaj Allianz who does not have a bank within the group – I believe this is a very positive possible outcome for us. This could be another positive kicker to growth for the next financial year.

Q: With respect to your fund raising plans for Bajaj Finance? There was also a QIP that you were looking at coming out with. What is the status on that?

A: We have postponed that to next year. We needed funds for the business as it was growing. What we had planned was that we would look at funds for the next couple of years. Now Bajaj FinServ owns nearly 60% of Bajaj Finance. So Bajaj FinServ itself would not have been able to raise additional capital because we would have triggered the Sebi’s Takeover Code which was at 60%.

In this interim period that we did issue warrants to Bajaj FinServ the Takeover Code has moved up from 60% to 75%. So it gives us more headroom and we don't necessarily need to do the QIP along with the warrants which is why these two fund raisings are not connected anymore.

With the huge volatility that we saw in stock prices, we decided to push the QIP by about a year or so. The company is very adequately capitalized. It currently has capital of 17.5% as capital adequacy and the additional capital from Baja FinServ will flow in by March this year and some more next year. We hope by the second half of next year or early 2013, the market will also be much more stable. So we will go and review our fund raise at that point of time.

Q: What is the update on the mutual fund business?

A: The update remains the same. We are still trying to understand what the right way is to enter this market. There are opportunities both on the domestic side as well as raising funds abroad to invest in this market because of some of the relaxations that Sebi has given. The team is studying this. I don’t have an update beyond that stage. Hopefully, by the end of this financial year, maybe by May or June, we should know more.

Q: What is the impact of the third party motor pool on the general insurance business? That has been one segment which has constantly been pulling the industry down?

A: That is a huge negative for the industry and for us, in the way it has panned out over the last four years that the pool has been there. The IRDA has just come out with a note on January 3, which is effective for the fourth quarter by which the industry will see additional losses of around Rs 5,000 crore to Rs 7,000 crore.

We will have our own hit of that which is about 6% or so. The final working on this is something that the General Insurance Council and different companies are doing right now. That is why the IRDA has asked insurance companies to take this only in the fourth quarter and has given a relaxation for solvency effective March 31, 2012.

The good news is that recognizing that this pool has not worked in the manner that it was supposed to; IRDA has also announced that it is disbanding this pool and replacing it with a much smaller decline pool. This is a much smaller pool which will be effective from April. They formed a committee to decide the details as to how this decline pool will work.

The industry and we on our general insurance business will take a large hit. In the fourth quarter, we have quantified that hit as an additional Rs 329 crore for Bajaj Alliance General based on the IRDA note as we understand it right now but we will know much more in the fourth quarter.