CMP 816.00

Target Price 868.00

ISIN: INE918I01018

MAY 16th

2014

BAJAJ FINSERV LIMITED

CONSOLIDATED Result Update: Q4 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Financial Services

BSE Code 532978

Face Value 5.00

52wk. High / Low (Rs.) 857.00/563.30

Volume (2wk. Avg. Q.) 141000

Market Cap (Rs. in mn.) 129841.92

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY14A FY15E FY16E

Net Sales 60210.20 68639.63 78935.57

EBITDA 44943.60 51878.50 58884.81

Net Profit 15440.80 17152.93 18734.68

EPS 97.04 107.80 113.19

P/E 8.41 7.57 7.21

Shareholding Pattern (%)

1 Year Comparative Graph

BAJAJ FINSERV LIMITED S&P BSE SENSEX

Highlights

Bajaj Finserv Ltd is the financial services

company of the Bajaj Group, incorporated in April

30, 2007. Through its subsidiaries, provides

various financial products and services in India.

Revenue rose by 1.62% and stood at Rs. 20500.70

million in Q4 FY14 from Rs. 20172.90 million in

Q4 FY13.

The Company’s net profit declined by 22.48% and

stood at Rs. 7076.30 mn from Rs. 9128.60 mn in

the corresponding quarter of the previous year.

Operating profit fell by 3% to Rs. 16587.30

million in Q4 FY14 against Rs. 17123.10 million in

previous year period.

Bajaj Finance total income was increased by 31%

to Rs. 40730.00 mn in FY14 from Rs. 31100.00

mn in FY13.

Net earned premium (excluding motor pool) of

Bajaj Allianz General Insurance’ was at Rs.

34890.00 million in for FY14 against Rs.27090.00

million in FY13, increase of 29%.

Bajaj Finserv Ltd has recommended a dividend of

Rs. 1.75 per share (35%) for the year 2013-14.

Net Sales and PAT of the company are expected to

grow at a CAGR of 16% and 5% over 2013 to

2016E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Bajaj Finserv Ltd 816.00 129841.92 97.04 8.41 1.39 35.00

Shriram Transport Finance Co Ltd 814.00 184455.70 55.72 14.59 2.18 70.00

Rural Electrification Corporation Ltd 272.15 268737.00 45.09 6.04 1.54 75.00

Reliance Capital Ltd 407.55 101639.50 16.62 24.84 0.88 130.00

Recommendation & Analysis - ‘BUY’

Bajaj FinServ Limited reported consolidated revenue of Rs. 20500.70 mn in quarter ending March 31, 2014, as

against Rs. 20172.90 mn in the corresponding period of the previous year rising by just 1.62% y-o-y. Profit after

Tax or Net Profit declined by 22.48% YOY from Rs. 9128.60 mn to Rs. 7076.30 mn in the current March quarter.

EBDITA or operating profit also fell but at a lower rate of 3% from Rs. 17123.10 mn to Rs. 16587.30 mn in Q4

FY14. Net Interest Income of Bajaj Finance Ltd stood at Rs. 6450.00 mn compared to Rs. 5150.00 mn in

corresponding quarter of the previous year, rising by 25% YOY. PAT for BFL was Rs. 1820.00 mn compared to Rs.

1640.00 mn in Q4 FY13. Bajaj Allianz General Insurance Company Ltd (BAGIC) reported PAT of Rs. 1010.00 mn

from Rs. 620.00 mn in same period previous year, rising by 63% YOY. Gross written premium rose by 6% and

stood at Rs. 12660.00 mn against Rs. 11970.00 mn in Q4 FY13. In a challenging economic environment of slow

growth and high inflation, Bajaj Finserv has exhibited resilience and is expected to perform well in the coming

quarters. Hence, we recommend ‘BUY’ for ‘BAJAJ FINSERV LIMITED.’ with a target price of Rs. 868.00 for

medium and long term.

QUARTERLY HIGHLIGHTS (CONSOLIDATED)

Results updates- Q4 FY14,

Rs. In Mn March-14 March-13 % Change

Net Sales 20500.70 20172.90 1.62%

Net Profit 7076.30 9128.60 -22.48%

EPS 44.47 57.37 -22.48%

EBITDA 16587.30 17123.10 -3.13%

Bajaj FinServ Limited has achieved a turnover of Rs. 20500.70 million for the 4th quarter of the current year

2013-14 as against Rs. 20172.90 million in the corresponding quarter of the previous year. The company has

reported an EBITDA of Rs. 16587.30 million a decline of 3.13% and Net Profit of Rs. 7076.30 million against Rs.

9128.60 million reported respectively in the corresponding quarter of the previous year. The company has

reported an EPS of Rs. 44.47 for the 4th quarter as against an EPS of Rs. 57.37 in the corresponding quarter of the

previous year.

Break up of Expenditure

Rs. In Million Q4 FY14 Q4 FY13 CHNG %

Marketing & Other

Commissions

569.80 475.30 20%

Other Expenditure 1031.90 915.00 13%

Recovery Cost 467.30 311.50 50%

Provisions & Loan Losses 621.60 450.30 38%

Employee Benefit Expenses 1194.10 838.50 42%

Depreciation 145.60 101.90 43%

Standalone results for the quarter & year ended March 31, 2014

The Company has posted a net profit of Rs. 105.70 million for the quarter ended March 31, 2014 as compared to

net loss of Rs. (172.80) million for the quarter ended March 31, 2013. Total Income has decreased from Rs.

274.10 million for the quarter ended March 31, 2013 to Rs. 180.30 million for the quarter ended March 31, 2014.

The results for the Year ended March 31, 2014

The Company has posted a net profit of Rs. 833.90 million for the year ended March 31, 2014 as compared to Rs.

508.40 million for the year ended March 31, 2013. Total Income has increased from Rs. 1522.50 million for the

year ended March 31, 2013 to Rs. 1573.00 million for the year ended March 31, 2014.

COMPANY PROFILE

Bajaj Finserv Ltd is the financial services company of the Bajaj Group, incorporated in April 30, 2007 as a result

of its demerger from Bajaj Auto Limited to act as a pure play financial services business. The process of demerger

was completed in Feb 2008. The company’s ultimate goal is not only to looks in high growth business areas of

Auto, Insurance, Finance sectors and Wind Power but also to run independently these core businesses and to

strengthen the competencies.

The demerger has enabled investors to hold separate focused stocks and also facilitate transparent

benchmarking of the companies to their peers in their respective industries.

Bajaj Finserv Ltd., through its subsidiaries, offers consumer finance, including consumer durable, personal, small

business, and construction equipment loans; loans against property and shares; two and three wheeler financing;

and insurance services for individuals/institutions. Further, it is involved in the generation and sale of wind

power; and operation of 138 windmills with an installed capacity of 65.2 MW in Maharashtra.

Subsidiaries

Bajaj Finserv participates in the insurance business through - 74% holding in Bajaj Allianz Life Insurance

Company Ltd. and Bajaj Allianz General Insurance Company Ltd. and in the lending business through - 61.99%

holding in Bajaj Finance Ltd.

• BAJAJ FINANCE LIMITED

Diversified NBFC present in consumer finance, SME & commercial lending. Market leader in consumer

durables financing, & motorcycle financing. Assets under management stood at Rs. 240610 mn as on 31st

March 2014.

• BAJAJ ALLIANZ GENERAL INSURANCE

A leading brand and number 2 private non-life insurer in India. Net earned premium (excluding motor pool)

stood at for FY14 stood at RS. 34890 mn.

• BAJAJ ALLIANZ LIFE INSURANCE

Bajaj Allianz Life insurance is one of the most profitable life insurers in India. The total investments as at 31st

March 2014 stood at Rs. 387790 mn.

• BAJAJ FINANCIAL SOLUTIONS(Wealth Management Business)

Bajaj Financial Solutions Ltd., a newly formed 100% subsidiary of Bajaj Finserv, would provide Financial

Advise and also distribute financial products to the individuals and has started its operations in the first half

of 2011. Bajaj Financial Solutions intends to be a financial advisor for every individual/institution. By

understanding the portfolio needs and risk profiles of customers, it will offer portfolio advisory and

investment planning services.

Focus is on cross-selling financial advisory and wealth management services to existing customers.

FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2013 -2016E FY-13A FY-14A FY-15E FY-16E

I. EQUITY AND LIABILITIES

A) Shareholder's Funds

Share Capital 795.60 795.60 795.60 795.60

Reserves and Surplus 77235.30 92315.90 96931.70 101778.28

Fair value change account -16.10 0.00 0.00 0.00

Sub Total - Net worth 78014.80 93111.50 97727.30 102573.88

B) Fund for future appropriations 1740.60 1839.50 0.00 0.00

C) Minority interest 28989.20 35415.10 38956.61 42462.70

D) Non Current Liabilities

Long term borrowing 73605.80 103002.60 135963.43 165875.39

Deferred Tax Liabilities 88.20 104.60 109.83 114.22

Linked liabilities 17081.50 19561.20 23082.22 26082.90

Other Long term liabilities 427.70 605.80 775.42 930.51

Policy liabilities 80433.70 106037.00 143149.95 183231.94

Discontinued Fund Liabilities 489.80 1455.00 1600.50 1792.56

Long term Provisions 839.10 1196.40 1495.50 1794.60

Sub Total - Non Current liabilities 172476.00 231962.60 306176.85 379822.12

E) Current Liabilities

Short term borrowings 20801.40 54727.80 68409.75 85512.19

Trade payables 45629.60 50608.90 55163.70 61231.71

Linked liabilities 227884.30 193314.80 206846.84 223394.58

Other Current liabilities 50290.00 46084.70 48849.78 53734.76

Policy liabilities 7251.60 11047.50 13809.38 16295.06

Short term Provisions 20711.30 25824.20 29956.07 33550.80

Sub Total - Current liabilities 372568.20 381607.90 423035.52 473719.10

TOTAL EQUITY AND LIABILITIES (A + B + C + D + E) 653788.80 743936.60 865896.27 998577.80

II. ASSETS

F) Non-Current Assets:

a) Fixed Assets 7806.30 8347.70 9516.38 11039.00

b) Goodwill on consolidation of subsidiary/associates 4290.30 4290.30 4504.82 4775.10

c) Non-current investments 92492.50 114566.40 137479.68 160851.23

d) Policyholders’ investments 81622.00 103741.20 127601.68 149293.96

e) Assets held to cover linked liabilities 32952.20 29098.40 30553.32 32692.05

f) Deferred Tax Asset 1312.20 1710.60 1967.19 2163.91

g) Long Term loans and advances 2147.00 3077.30 3692.76 4246.67

h) Receivables under financing activity 95481.90 138524.20 168999.52 202799.43

i) Other non-current assets 8717.00 8537.20 8964.06 9591.54

Sub Total - Non Current Assets 326821.40 411893.30 493279.40 577452.90

G) Current Assets

Current Investment 6866.50 8882.90 10481.82 12054.10

Policyholders’ investments 6072.50 11621.00 15107.30 18430.91

Assets held to cover linked liabilities 212013.60 183777.60 192966.48 208403.80

Assets held to cover discontinued funds 489.80 1455.00 2197.05 2746.31

Receivables under financing activity 71954.50 91185.30 111810.70 134103.20

Trade receivables 3530.20 3703.80 3963.07 4319.74

Cash and Bank Balances 16031.40 20609.90 24319.68 27967.63

Short-terms loans & advances 3710.50 3927.10 4202.00 4622.20

Other current assets 6298.40 6880.70 7568.77 8477.02

Sub Total - Current Assets 326967.40 332043.30 372616.87 421124.91

Total Assets (F+G) 653788.80 743936.60 865896.27 998577.80

Annual Profit & Loss Statement for the period of 2013 to 2016E

Value(Rs. mn) FY13A FY14A FY15E FY16E

Description 12m 12m 12m 12m

Net Sales 50724.30 60210.20 68639.63 78935.57

Other Income 24.60 39.70 55.58 77.81

Total Income 50748.90 60249.90 68695.21 79013.38

Expenditure -11459.30 -15306.30 -16816.71 -20128.57

Operating Profit 39289.60 44943.60 51878.50 58884.81

Interest -12035.80 -15618.70 -19367.19 -23240.63

Gross profit 27253.80 29324.90 32511.31 35644.19

Depreciation -172.70 -308.80 -370.56 -452.08

Profit Before Tax 27081.10 29016.10 32140.75 35192.10

Tax -4939.40 -7106.80 -8195.89 -9325.91

Profit After Tax 22141.70 21909.30 23944.86 25866.20

Minority Interest -6405.30 -6468.50 -6791.93 -7131.52

Net Profit 15736.40 15440.80 17152.93 18734.68

Equity capital 795.60 795.60 795.60 795.60

Reserves 77235.30 92315.90 96931.70 101778.28

Face value 5.00 5.00 5.00 5.00

EPS 98.90 97.04 107.80 113.19

Quarterly Profit & Loss Statement for the period of 30th Sep, 2013 to 30th June, 2014E

Value(Rs. mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E

Description 3m 3m 3m 3m

Net sales 13086.10 13925.30 20500.70 17425.60

Other income 8.10 12.80 8.20 8.61

Total Income 13094.20 13938.10 20508.90 17434.21

Expenditure -3602.70 -4012.30 -3921.60 -4443.53

Operating profit 9491.50 9925.80 16587.30 12990.68

Interest -3798.50 -4057.40 -4452.30 -4986.58

Gross profit 5693.00 5868.40 12135.00 8004.10

Depreciation -54.00 -65.00 -145.60 -152.88

Exceptional Items -72.40 0.00 72.40 0.00

Profit Before Tax 5566.60 5803.40 12061.80 7851.22

Tax -1596.10 -1708.80 -2233.40 -2057.02

Profit After Tax 3970.50 4094.60 9828.40 5794.20

Minority Interest -1205.10 -1283.50 -2752.10 -2889.71

Net Profit 2765.40 2811.10 7076.30 2904.50

Equity capital 795.60 795.60 795.60 795.60

Face value 5.00 5.00 5.00 5.00

EPS 17.38 17.67 44.47 18.25

Ratio Analysis

Particulars FY13A FY14A FY15E FY16E

EPS (Rs.) 98.90 97.04 107.80 113.19

EBITDA Margin (%) 77.46% 74.64% 75.58% 74.60%

PBT Margin (%) 53.39% 48.19% 46.83% 44.58%

PAT Margin (%) 43.65% 36.39% 34.88% 32.77%

P/E Ratio (x) 8.25 8.41 7.57 7.21

ROE (%) 28.38% 23.53% 24.50% 25.21%

ROCE (%) 22.88% 18.04% 17.30% 16.76%

Debt Equity Ratio 1.21 1.69 2.09 2.45

EV/EBITDA (x) 5.30 5.94 5.97 6.11

Book Value (Rs.) 490.39 585.17 614.17 614.17

P/BV 1.66 1.39 1.33 1.33

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 816.00, the stock P/E ratio is at 7.57 x FY15E and 7.21 x FY16E

respectively.

� Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.107.80 and

Rs.113.19 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 5% over 2013 to 2016E

respectively.

� On the basis of EV/EBITDA, the stock trades at 5.97 x for FY15E and 6.11 x for FY16E.

� Price to Book Value of the stock is expected to be at 1.33 x for FY15E and 1.27 x for FY16E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.868.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

Indian financial services industry has been through the toughest of the times and yet stands strong and robust

among the world economies. Having a deep impact of the far-reaching changes in the Indian economy since

liberalization, the new face of this industry is evolving in a strong, transparent and resilient system.

Over the last few years, financial markets have witnessed a significant broadening and deepening of service

baskets with the introduction of several new instruments and products in banking, insurance and capital

markets space. The sector was opened up to new private players including foreign companies who embraced

international best practices and modern technology to offer a more sophisticated range of financial services to

corporate, retail and institutional customers. Financial sector regulators too have been visionaries to ensure that

new regulations and guidelines are in tandem with global norms. These developments have given a robust boost

to the development and modernisation of the financial services sector in India.

Insurance Sector

Indian life insurance sector collected new business premiums worth Rs 117427.00 million (US$ 1.92 billion) for

April-May 2013, according to data from the Insurance Regulatory and Development Authority (IRDA). Life

insurers collected Rs 1,070107.00 million (US$ 17.47 billion) worth of new premiums for the financial year

ended March 31, 2013.

Meanwhile, the general insurance industry grew by 19.6 per cent in April-May period of FY14, wherein the non-

life insurers collected premium worth Rs 135524.60 million (US$ 2.21 billion).

Mutual Funds Industry in India

India’s asset management companies (AMCs) have witnessed growth of 0.7 per cent in August 2013 wherein

their average assets under management (AUM) stood at Rs 7.66 lakh crore (US$ 125.10 billion).

Private Equity, Mergers & Acquisitions in India

• Private equity (PE) and venture capital (VC) firms remained bullish about India’s consumer goods and

services sector. PE and VC investments increased by more than 46 per cent in the first half of FY14, with

consumer companies in retail, e-commerce, consumer packaged goods and quick service restaurants raising

US$ 609.39 million through 51 deals.

• Meanwhile, Indian merger and acquisition (M&A) space witnessed substantial levels of deal activity in the

first nine months of 2013. There happened 377 deals amounting to US$ 23.9 billion, according to a survey by

tax advisory firm Grant Thornton.

Foreign Institutional Investors (FIIs) in India

• Investments in Indian markets (equity, debt and derivatives) through participatory notes (P-Notes)

increased to US$ 23.74 billion by the end of July 2013, according to the data released by Securities and

Exchange Board of India (SEBI).

• P-Notes allow high net-worth individuals (HNI), hedge funds and other foreign institutions to invest in Indian

markets through registered FIIs.

• The FIIs investments through P-Notes registered a growth of 11.45 per cent in July 2013 as compared to

10.93 per cent in June 2013.

• Overseas investors infused more than US$ 2 billion in the Indian stock market in the month of September

2013. Since the beginning of 2013, they have pumped a net US$ 13.7 billion in equities.

• Moreover, given the higher yields offered by Government and corporate debt, the FIIs have been aggressively

buying bonds since the beginning of 2013. The debt market attracted a net inflow of about Rs 250000.00

million (US$ 4.08 billion) in January-May 2013.

• As of October 4, the number of registered FIIs in the country stood at 1, 744 and the total number of sub-

accounts at 6, 358.

Financial Services in India:

Recent Developments

• Bangalore-based online retailer Flipkart has raised US$ 200 million from its existing investors including

South African technology company Naspers Group and private equity (PE) firms Accel Partners and Tiger

Global. The investors have already placed investments to the tune of US$ 181 million in the Indian e-

commerce company and this fifth round of funding has marked the single-largest round of investment

infusion.

• The funds would be used to build technology and will help the company strengthen its supply chain and

human resource base.

Financial Services:

Government Initiatives

� In order to attract more of foreign capital to Indian markets, SEBI has eased norms for overseas investors in

the debt category. As per the new rulings, FIIs will be allowed to buy Government securities (Gilts) directly

from the market, rather than from the monthly auction conducted by the regulator to allocate these papers.

� The move is expected to facilitate more dollar inflows into the country besides making the cost of acquisition

of gilts cheaper for foreign investors. In a similar initiative taken earlier in 2013, SEBI had allowed FIIs to buy

corporate debt (which were also allocated through auction previously).

Road Ahead

IRDA estimates that the insurance business in India would touch Rs 4 lakh crore (US$ 65.32 billion) by the end of

FY14. The regulator is considering bringing out norms for sub-brokers of insurance products as well

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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