Earnings to remain strong going ahead: Bajaj Finserv

In an interview to CNBC-TV18 Sanjiv Bajaj, managing director, Bajaj Finserv & Investments pointed out that the strong profit growth seen in life insurance, general insurance and Bajaj Finance helped the company to clock a rise of 51% in net profit.

Bajaj Finserv’s consolidated net profit for the first quarter of FY13 stood at Rs 195 crore versus Rs 129 crore, year-on-year, YoY. Consolidated income from operations was at Rs 927 crore against Rs 613 crore, YoY. Bajaj is optimistic about the financial performance to be strong going ahead, but he prefers to be a little cautious too. “These numbers have been extraordinarily positive given the overall weak economic scenario around us. But 50% growth rate does seem to be too much to ask for.” Meanwhile, its subsidiary Bajaj Finance will garner Rs 750 crore via rights issue towards the end of this year, he informed. "We expect to do this over the next 4-5 months. I would think that the equity dilution is about 11-12%." Below is the edited transcript of Bajaj’s interview with CNBC-TV18. Q: How did the quarter panned out? Can you give us a break up between both the life insurance segment and the general insurance segment where you have reported a PBT loss last quarter; has there been a recovery this time? A: We have had a great set of numbers across the three main companies. You named two of them, as far as life insurance is concerned, for the first time after many quarters, after really 6-7 quarters we have seen a growth in the new business premium. This is significant given all the changes that had happened over the last two years in life insurance at the industry level and for us. We saw a 28% growth in new business premium to Rs 484 crore and led by this we have seen PAT jump 40% to Rs 74 crore. The general insurance has been even better, while our top line, our gross premium has gone up 18% to Rs 940 crore. We have seen a 66% increase in PAT to Rs 65 crore. The third important business here is Bajaj Finance. Bajaj Finance has seen again gross income go up 56% to Rs 703 crore and similar increase in PAT to Rs 139 crore. A combination of very strong profit growth between 40-65% across these three companies has helped us grow our consolidated PAT by 51% to Rs 195 crore. Q: Overall for Bajaj Finserv particularly what kind of guidance can you throw up for the full year for FY13? Do you think you would be able to maintain this trajectory that you are seeing now? A: I won’t hazard a guess with the guidance. These numbers have been extraordinarily positive given the overall weak economic scenario around us. What happens as far as the economic situation is concerned can play a significant role both in Bajaj Finance and our insurance companies where large part of our business is consumer driven. _PAGEBREAK_ We are very largely retail in all these businesses. So, I would be very positively surprised if we saw the same growth numbers. I won’t hazard a guess, except to say that when we look at the numbers right now they are continuing to look strong, but 50% growth rate does seem to be too much to ask for. I don’t want to be so greedy. Q: You have mentioned that you are looking to raise about Rs 1,000 crore via rights issue. Can you tell us in how many tranches you will be raising this money? What the equity dilution will look like and what it would be used for? A: The important thing to note is that Bajaj Finance, which is our subsidiary, we own nearly 62% of that will raise Rs 750 crore towards the end of this year. To maintain our shareholding we will naturally go in and put our share of the money into their equity raised. That’s why we are raising primarily a Rs 1,000 crore in Bajaj Finserv. We expect to do this over the next 4-5 months. I would think that the equity dilution is about 11-12%. There is a board meeting today, which will decide the method by which we will raise this money. We will have greater then, but it’s primarily to maintain our holding in Bajaj Finance. Q: How do you think the general insurance business will pan out from here on? What have you done this quarter because last quarter you had reported a loss of about Rs 60 crore. What kind of trajectory do you hope to see in that specific vertical? A: The reason there was a Q4 loss in the general insurance business was because the entire loss on motor pool got taken in Q4. There was an IRDA circular on January 3 and as a result the Q4 took disproportionate loss. The motor pool loss was not only for the quarter, it was actually a couple of years catch up. If you see the profit for the year, we were the only general insurance company, one of the only two to declare a profit. When you look at it this year the motor pool has changed. There is a new decline motor pool and that should be far smaller in size and will dent much smaller amount in our bottom-line. That’s why we have reported very strong numbers in Q1. We are now writing our own third party motor pool business directly ourselves which is as per the new guidelines of IRDA. While it’s too early to say because this change has only happened from April, we would get a much better picture by about September-October, by end of Q2 of where we stand. We also must note that our claim ratios have been exceptionally low in Q1, it’s been less than 57%. So, we are atleast 5% lower than what we normally see, that’s because we have not seen any large claims come in Q1. Typically, by now we would have started seeing some claims due to floods, due to heavy rains, but because the rains have been delayed that’s something that has helped us. While our numbers we hope will continue to be strong, both in top-line and bottom-line in the remaining quarters, I would like us to be a little cautious, I think we have seen very good numbers in Q1.