Eye 25% AUM growth; motor sales still a drag: Bajaj Finserv

Bajaj Finserv has posted 46 percent profit after tax (PAT) growth is the first quarter and expects a growth of 25 percent in assets under management (AUM) this fiscal.Calling this the best performance at the consolidated level, Sanjiv Bajaj, MD, Bajaj Finserv says this was possible because of the healthy numbers posted by its subsidiaries, Bajaj Finance and Bajaj Allianz General Insurance.Speaking to CNBC-TV18, Bajaj says the general insurance industry is still seeing slow growth of 10-11 percent because a large part of the industry is motor insurance and motor sales have remained tepid, adding, “However, by picking the right insurance, we have managed to outperform the industry."Below is the edited transcript of Sanjiv Bajaj’s interview with Anuj Singhal and Sonia Shenoy on CNBC-TV18.Anuj: That is a really strong set of numbers. What led to this kind of growth and more importantly, is this sustainable?A: As you pointed out, the profit after tax (PAT) growth of 46 percent to Rs 467 crore is actually our best first quarter ever at the consolidated level for Bajaj Finserv and what we have seen is actually stellar performance across all the three subsidiaries.If you look at Bajaj Finance, again, the highest ever quarterly profit, Rs 276 crore. When you look at Bajaj Allianz General Insurance, again, the PAT of Rs 147 crore, highest in any first quarter an when you look at life insurance company, we have again seen a huge growth in shareholders profit to Rs 241 crore, a growth of over 200 percent. There is transfer from the policy holder funds in the first quarter, that is the reason, you are seeing such a high growth there. But overall, very strong profitable growth across each of these three subsidiaries and hence at the consolidated level at Finserv.Sonia: I was just going through some of your internals and the general insurance business as you just mentioned has done very well. So, Rs 1,320 crore is the revenue in that business verses Rs 1,170 crore same time last year and event he earnings before interest, taxes, depreciation and amortization (EBIT), the profit number has come in at more than Rs 200 crore versus about Rs 180 crore same time last year. How is the general insurance industry looking as a whole and what kind of growth do you envisage in FY16?A: The industry is still seeing slow growth. Growth of about 10-11 percent or so because a large part of the industry is motor insurance and motor sales have again remained quite tepid. However, by picking the right insurance, we have managed to perform or outperform the industry, I would say. And the one again important number that is reflective of profit is our combined ratio at 95.7 percent which is better than the 96 and half percent last year, we are, I would again assume to be industry leading. And it once again shows that you can generate profitable growth in the core insurance underwriting itself and your investment income then is the boost on top of that. So, it is very prudent, underwriting, it is leveraging technology, it is the capability that we have built over the last 15 years which is enabling us to consistently outperform.Anuj: A word on Bajaj Finance’s asset quality. We have seen a bit of worsening quarter-on-quarter, both in terms of gross non-performing assets (NPS) and net NPAs.A: When you look at this and with the way the company is growing, we have always said that for our mix of businesses, you should be able to see a 50-60 basis point net loss number. And we are in that range. It is 55 basis points in this quarter. Now, within that, 5-10 basis points here or there is not something that you can predict. One odd small to medium enterprise (SME) loan, gets default, you will see this kind of a blip and then some of them get paid back as well. So, I would look at the number in comparison to the industry and here again, what you would see would be the lowest net loss numbers by and large in the industry for the kind of product mix that we have in the customer segments that we lend to.Sonia: Can you throw some more colour on the life insurance business because this quarter, your EBIT or your profit in the life insurance is Rs 266 crore. But that compare to Rs 590 crore last quarter. So, on a quarter-on-quarter basis, the profitability has dipped. Is this an aberration or are your facing some concerns, some slowdown in the life insurance business?A: The life insurance business, there are two profit and losses (P&L) that we run. One is called the policy holders’ profit and loss account and one is the shareholders’ P&L. Now, what the Insurance Regulatory and Development Authority (IRDA) regulation say is that the policy holders’ profit, there is a portion of that which belongs to the shareholder. This can be passed on to the shareholders only after audited accounts. And till last year, our audited accounts only happened end of the year. And that is why the Q4 profit is actually an aberration because it is the transfer of the whole year’s policy holders’ funds. The profit on the policy holders’ account to the shareholders in one quarter. Hence for this year, for the first time, our life insurance company is presenting quarterly audited accounts and as a result, this allows us then to transfer the quarter share of profit from the policy holders’ to the shareholders’ funds. And this becomes a much better like-to-like to comparison with most of our peers who do the same thing. So, that is why the comparison with Q4 is an aberration because of the reason that I just mentioned and the comparison with the Q1 of the previous year will also be an aberration because this the first time we are doing this. But you will see this happening now quarter-on-quarter and then from next year onwards, the comparisons will become real. But we have also put the numbers down in our press release to show if we had not done this, what would the change have happened. So, the amount of transfer from the policy holder funds to the shareholder funds is about, just under Rs 100 crore.Anuj: You did say that you managed to outperform the industry. What is your current market share and do you have any kind of targets in mind for market share.A: When you talk about market share, as a general insurance business, as a life insurance business, as Bajaj Finance, it is in multiple customer segment. So, there is not one standard market share. But if I were to just run through to-line numbers, if you see our life insurance business has been degrowing year after year for the last many years. Now, for FY15, we finally saw 3-4 percent growth. It was only towards the end of FY15, that we got our entire suite of products in place. When you look at our first quarter numbers now, our new business premium is actually up 70 percent to Rs 674 crore and our total premium including the new premium is up 36 percent to Rs 1,082 crore. We are seeing very strong growth numbers in top-line over there. General insurance, again has seen a 12 percent growth to Rs 1,322 crore or so and would hold its market share just below six percent. So, that is one number I can share with that apple to apple comparison. And in the case of Bajaj Finance, as we know they are still a small player in the overall lending pie. This will account for just about half a percent of all loans that are given in the industry. Yet in lines that they are present, or example, in consumer loans, I believe they would be one of the largest consumer lenders by way of number of loans in the country and we have seen very strong growth again over there in the quarter.Sonia: Since you mentioned that the entire two-wheeler space is going through a bit of a slowdown, what kind of assets under management (AUM) growth can you see in FY16 because, as I see it in your press release, your assets under management stood at around Rs 35,000 crore as of this quarter which is an increase of 10 percent. Going forward, what can we expect?A: Now, the two wheeler growth and two wheeler financing accounts, in our case, for about 10 percent of our book. And yes, we expect that to continue to be slow for at least the next quarter or two and then we hope it will pick up. I do not know an exact number, but I would say, we would expect at least a 20-25 percent growth in AUM through the year, unless the economy gets much worse.