Bajaj Finserv insurance margin gains and lending momentum support earnings growth

Investment View and Valuation

ICICI Direct Research retains its BUY recommendation on Bajaj Finserv and raises the target price to Rs 2,360 from Rs 2,150. The investment case rests on disciplined underwriting in general insurance, structural margin improvement in life insurance, robust lending growth led by Bajaj Finance and the scaling of adjacent financial-services businesses.

ICICI Direct values Bajaj Finserv using a sum-of-the-parts approach. It assigns Bajaj Life Insurance 1.5 times FY28E embedded value, Bajaj General Insurance 28 times FY28E PAT and Bajaj Finance 4.4 times FY28E adjusted book value. A 15 per cent discount is applied to the value of the stakes.

Q1 FY27 Consolidated Performance

Bajaj Finserv reported healthy Q1 FY27 consolidated performance, with PAT rising 18 per cent year-on-year to Rs 6,297 crore, supported by lending and insurance.

Bajaj Finance Drives Earnings Growth

Bajaj Finance remained the principal earnings driver. AUM increased 24 per cent year-on-year to Rs 5,46,944 crore, new loans booked rose 20 per cent to 1.61 crore, net total income increased 22 per cent to Rs 15,224 crore and PAT grew 27.6 per cent to Rs 6,081 crore.

Asset quality improved, with loan loss to AUM declining to 1.54 per cent from 1.87 per cent a year earlier. GNPA and NNPA stood at 0.96 per cent and 0.39 per cent, respectively, while capital adequacy was 20.9 per cent. Management guided for a 25 to 40 basis point improvement in the FY27 operating-expense-to-net-total-income ratio through artificial intelligence-led efficiency initiatives.

Insurance Business Performance

Bajaj General Insurance

Gross written premium grew 11.3 per cent year-on-year to Rs 5,789 crore, broadly matching industry growth of 11.1 per cent. Growth was deliberately moderated in motor insurance amid soft pricing.

The combined ratio increased to about 104.7 per cent from 103.6 per cent, reflecting elevated government-health claims and weakness in the fire portfolio. Underwriting loss widened to Rs 130 crore from Rs 116 crore. Profit fell to Rs 478 crore from Rs 660 crore because realised capital gains were lower.

Management reiterated that profitability takes priority over market share and targets a combined ratio of about 100 per cent through the cycle through underwriting discipline, portfolio diversification and reinsurance protection. Crop tenders secured are expected to exceed last year, while the government-health contract is expected to renew, although its scale could be marginally lower due to the base effect.

Bajaj Life Insurance

Bajaj Life Insurance delivered retail weighted received premium growth of 17.5 per cent year-on-year to Rs 1,474 crore, ahead of industry growth of 16.2 per cent. Value of new business rose 87 per cent to Rs 271 crore and new-business margin expanded 480 basis points year-on-year to 15.9 per cent despite a 290 basis point GST headwind.

Retail protection grew 60 per cent and represented 12 per cent of the retail mix, while rider attachment reached 22 per cent. Management expects further margin expansion from a richer product mix, greater protection penetration and operating leverage.

Life-insurance gross written premium grew 35 per cent, but PAT declined to Rs 51 crore from Rs 171 crore owing to lower realised capital gains and an upfront GST cost write-off. Management noted persistency weakness in certain cohorts related to an early-withdrawal product that has been reconfigured and closed.

Diversification and Adjacent Businesses

Other businesses provide longer-term diversification. Bajaj Housing Finance AUM grew 24 per cent year-on-year and PAT rose 23 per cent to Rs 715 crore. Bajaj Finserv AMC AUM increased 26 per cent to Rs 31,400 crore, with management targeting Rs 1 lakh crore over the next three years.

Bajaj Markets management expects company-level breakeven by Q3 or Q4 FY27 and a positive full year in FY28. The board has approved establishing a domestic reinsurance company, with initial capital requirements yet to be quantified.

Key Risks

• Higher-than-expected credit costs could reduce lending profitability.
• Volatility in the general-insurance combined ratio could affect earnings.