Hold Bajaj Finserv, target price Rs 4,800: ICICI Securities

ICICI Securities has given a hold rating to Bajaj Finserv with a 12-month target price of Rs 4,800 based on a multiple of 16 times on FY22E consolidated earnings.

The stock has been downgraded to hold with a revised target price of Rs 4800/share, based on SOTP valuation. Bajaj Finserv reported a steep fall in earnings due to lower premium accretion coupled with surge in Covid related contingent provision & month to month losses on equity investment.

Investment Rationale

The strategy to focus on a selective pocket for growth, increase efficiency and improve collection bodes well in the changed environment. However, increase in bounce rate and substantial customers opting for moratorium induces concern on repayment trend ahead. In insurance, pent up demand exists especially for term and health products, though lockdown in the start is seen to impact business growth as well as profitability in FY21E.
The management’s focus to remain profitable on underwriting basis rather than investment income provides confidence.

Factoring the changed scenario, the brokerage has cut its earnings estimates by 18 per cent for FY22E. Lower growth & higher uncertainty on asset quality warrant being cautious in near term till clarity on lockdown and moratorium behaviour emerges.

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.