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    Buy Bajaj Finserv, target price Rs 5.870: JM Financial

    Synopsis

    The brokerage expects growth challenges to persist for the better part of FY21E for all three businesses.

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    JM Financial maintains a buy rating on Bajaj Finserv with a SOTP based target price of Rs 5,870. In 4QFY20, Bajaj FinServ reported consolidated PAT of Rs 1.9 billion, down 77 per cent year on year owing to the following COVID19 related impacts, a) MTM losses on Bajaj General Insurance and Bajaj Life Insurance investments of Rs 7.7 billion and b) contingency provision of Rs 9 billion made by lending arm, Bajaj Finance. Excluding these, the consolidated PAT was Rs 10 billion, up 19 per cent year on year. The fourth quarter saw growth moderate for all three businesses, a) Bajaj General Insurance posted GWP (gross written premium) decline of 22 per cent year on year (ex-crop, GWP decline of 5 per cent) vs industry degrowth of 1 per cent. b) Bajaj Life Insurance witnessed individual APE decline 12 per cent year on year vs industry degrowth of 13 per cent. c) Bajaj Finance reported AUM growth of 27 per cent year on year as loss of 7-8 active days in Mar’20 shaved off 400 bps from growth.

    Investment Rationale

    With the top-5 states with Covid-19 cases accounting for 54 per cent of Bajaj General Insurance’s GDPI (gross direct premium income) and 38 per cent of Bajaj Life Insurance’s urban individual premiums while 77 per cent of BAF’s branches lie in orange+red zones, the brokerage expects growth challenges to persist for the better part of FY21E for all three businesses. However, all three of Bajaj FinServ’s businesses are strong franchises in their respective fields and well-poised to deliver sustainable profitability going forward.

    Financials

    For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 13294.25 crore, down -8.69 per cent from last quarter sales of Rs 14558.92 crore and up 2.31 per cent from last year's same quarter sales of Rs 12994.14 crore. The company has reported net profit after tax of Rs 538.98 crore in the latest quarter.

    Promoter/FII Holdings

    Promoters held 60.80 per cent stake in the company as of March 31, 2020, while FIIs held 8.62 per cent, DIIs 6.24 and public and others 24.34 per cent.
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