Insurance - KRChokseyNon-Life Insurance – Colossal Scope Awareness and popularity of general...

InsuranceAnchoring : The Evolution

1st February, 2017

1 ExecutiveSummary

02

2 InvestmentRationale

India Insurance Market beefing up

Life Insurance – Sterling Opportunity

Non-Life Insurance – Colossal Scope

03

05

09

3 Conclusion

4 Potential Ideas in Insurance Sector

ICICI Prudential Life Insurance Limited14

19 Bajaj Finserv Ltd

Contents

13

Executive Summary

2

Post liberalisation, the insurance industry in India has recorded significant growth. There are 24 life

insurance and 28 non-life insurance companies, Out of these 52 insurance companies, 45 are in the

private sector. GIC is the sole national reinsurer.

Indian insurance industry is quite sizeable and attracts investment from leading insurance players from

different corners of the world. Currently it is being estimated that the Indian insurance industry will need

more than $8 billion worth of capital to improve its solvency standards and increase the penetration

levels. A rapidly growing economy, rising level of incomes, and improving life expectancy rates are some

of the many reasons that will also contribute to the growth of the sector and present a great

opportunity for insurance companies overseas.

InsuranceCompanies

in India

52Players in Life

Insurance

24Players inNon-Life

28Private : Public

45:7

India

Insurance Penetration (%) - 2015

7.3

20.0

15.0

10.0

5.0

0.0

United State

10.0

14.8

3.4

10.85.1

3.67.3

11.4

1.2

19.0

5.5 6.2

United Kingdom

HongKong

Japan Malaysia China Singapore SouthKorea

SriLanka

Taiwan Thailand World

Insurance Density (USD) - 2015

4096

7000

6000

5000

4000

3000

2000

1000

0

United State

4359

6271

55

3554

472 281

38253034

43

4094

319621

United Kingdom

HongKong

India Japan Malaysia China Singapore SouthKorea

SriLanka

Taiwan Thailand World

Source: IRDA, Annual Report 2015-16

3


Post liberalisation, the insurance industry in India has recorded significant growth.

India currently accounts for less than 1.5% of the world’s total insurance premiums

and about 2% of the world’s life insurance premiums despite being the second most

populous nation. The insurance industry is expected to rise and reach USD280 billion

in 2020 from its current size of US$ 76 billion (2016), owing to the solid economic

growth and higher personal disposable incomes in the country.

less than 1.5% of the world’s total insurance premiums and about 2%

of the world’s life insurance premiums

despite being the second most

populous nation

2016

76US$

Billion

Estimated growth of the Indian Insurance Industry

2020

137US$

Billion



Non-Life Insurance – Colossal ScopeInvestment Rationale

Gross Premiums written in India including Life & Non-Life (USD Bn)

23

300

250

200

150

100

50

0

FY05

29 40 57 55 64 74 71 64 65 76

137

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY20 (E)

Source – ibef.org, IRDA annual report

4

12-15%Estimated 5-year CAGR

for Life Insurance industry

17%Estimated 5-year CAGR

for Non-Life Insurance industry

During April 2015 to March 2016 period, the life insurance industry recorded a new

premium income of Rs 1.38 trillion (US$ 20.54 billion), indicating a growth rate of

22.5 per cent. India’s life insurance sector is the biggest in the world with about

360 million policies which are expected to increase at a Compound Annual Growth

Rate (CAGR) of 12-15% over the next five years. The insurance industry plans to hike

penetration levels to 5% by 2020.

During April 2015 to March 2016 period, general insurance industry recorded a 12%

growth in Gross Direct Premium underwritten in April 2016 at Rs 105.25 billion (US$

1.55 billion) and is expected to growing at a healthy rate of 17%.

Source – IRDA annual report 2105-16

Driving Gross Direct Premium Growth

4000

3000

2000

1000

02006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

1059

225

1561

271

2014

305

2218

336

2654

392

2916

482

2871

598

2872

712

3143

799

3281

872

3669

993

Life Insurance (Rs bn) Non Life Insurance (Rs bn)




“ Insurance

penetration set to

reach 5% by FY2020

from current 3.4%”

5

The size of the Indian life insurance sector (excluding Sahara Life Insurance

Company Limited) is Rs 3.7 trillion on a total premium basis in fiscal 2016, making it

the tenth largest life insurance market in the world and the fifth largest in Asia. In

FY01-16, Indian life insurance premium grew at a healthy pace of ~17% CAGR.

Despite this, India continues to remain under-penetrated market with life

insurance penetration (Insurance penetration refers to premiums as a percentage

of GDP) at 2.7% in FY15, as compared to 3.7% in Thailand, 7.3% in South Korea and a

global average of 3.5% in 2015. Similarly, insurance density (per capita premium or

premium per person) also remains very low as compared to other developed and

emerging market economies at USD 43 in 2015. Protection gap for India remains

higher compared to other Asian peers at ~USD 8.5 trillion. (Source: Swiss Re,

Economic Research & Consulting “Mortality Protection Gap Asia-Pacific 2015”)

Source: ibef.org

Largest Life InsuranceMarket Globally

10th

India’s Life Insurance Sector snapshot

Largest Life InsuranceMarket in Asia

5thSize of India’s

Life Insurance Sector

3.7Trillion

Life InsurancePenetration

2.7%Growth of Life Insurance

Sector between FY 01 – 16

~17%CAGR




“ Under Penetrated

Indian Life

Insurance industry

at 2.7% versus

global average of

3.5% offers huge

opportunity”

6

Life Insurance Premium as a % of GDP (2015)

12.0%14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

S Africa Japan S Korea Thailand US India China Indonesia

8.3%7.3%

3.7% 3.1% 2.7% 2.0%1.3%

Source: ibef.org

Life Insurance density (2015) – in

USD

21712500

2000

1500

1000

500

0Japan S Korea US S Africa Thailand Brazil China India Indonesia Turkey Russia

1940 1719

688215

178 153 43 43 17 15




Life insurance industry recorded a premium income of Rs 3669.43 bn during

2015-16 as against Rs 3281.02 bn in the previous financial year, registering

growth of 11.84% (4.39% growth in previous year). While private sector

insurers posted 13.64 %growth (14.32% growth in previous year) in their

premium income, LIC recorded 11.17% growth (1.15% growth in previous year).

Source – ibef.org

29.6

Private

70.4

Public

Size: UDS 61.78 billion

FY16

4000350030002500200015001000500

0

0.5

0.4

0.3

0.2

0.1

0

-0.1

4%

12%9%

0%-2%

10%

20%

10%

29%

47%

28%

Life Insurance Premium Growth %

Life Insurance Premium in Rs bn

FY16FY15FY14FY13FY12FY11FY10FY09FY08FY07FY06

Source – IRDA, Annual Report 2015-16

“ Life Insurance Per

Capita Density in

India at one-third

of China ”

7

Changing demographics and rising affluent class

India currently has one of the youngest population in the world with a median age

of 28 years. Ii is estimated that 90% of India’s population will remain below 60

years of age by 2020. Rapid urbanisation coupled with high share of working

population with rising affluence is expected to provide impetus to growth in Indian

life insurance sector.

Financial Saving Trend

The share of financial savings as a proportion of household savings is likely to rise,

as stable inflationary trends and positive real interest rates generally diminish the

attractiveness of physical savings such as investments in gold and real estate.

Source – Max Financial Services, presentation




0-9

23

10-19

23

20-29

22

30-39

20

40-49

17

50-59

13

60-69

8

70-79

4

80-89

1

90-99

0.1

Age Band

Population distribution to shift towards25-45 age group by 2020 (in Cr)

Source – Max Financial Services, presentation

“ Estimated 90% of

India population to

remain below 60

by 2020 offers

gigantic potential ”

8

The share of life insurance as a proportion of financial savings in India reached

its highest level at 26.2% in fiscal 2010. However, with regulatory changes in the

sector and a downturn in capital markets, the share of life insurance declined

sharply to 16.0% of financial savings in fiscal 2014. In fiscal 2015, the share of life

insurance increased to 19.0%, partly due to increase in the sale of linked

products.

Household Saving

FY2012

25

20

15

10

5

0

FY2013 FY2014 FY2015 FY2016

14.23

6.43

Physical Saving Financial Savings

15.00

7.34

14.98

8.63

14.19

9.61

15.34

10.65

31% 33% 37% 40% 41%

Financial Savings as a % of Household Savings50%

40%

30%

20%

10%

0%

Others

Provident&Pension Fund

Life Insurance

Bank Deposits

Currency

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

10% 13% 11% 11% 8% 11%

40% 51% 56% 56% 61% 47%

26% 19% 21% 18% 16% 19%

13% 13% 10% 12% 11% 16%

11% 4% 2% 3% 4% 7%

Financial Saving Mix (%)

Source – ICICI Prudential Life , RHP




“ Share of Life

Insurance as a

proportion to

savings in uptrend

at 19% ”

9

Non-Life Insurance – Colossal Scope

Awareness and popularity of general insurance requirements is growing by leaps

and bounds in India. The non-life insurance market grew from USD2.6 billion in

FY02 to USD13.4 billion in FY16; the non-life insurance penetration rate is 0.7%

over 2015 and Non life insurance density increased from USD 4.0 in FY04 to USD

10.42 in FY15 at a CAGR of 9.09%.

2010 2011 2012 2013

0.71

Non-life Insurance penetration (%)

0.80

0.78

0.76

0.74

0.72

0.70

0.68

0.66

0.64

0.70

0.78

0.80

2015

0.70

8.7

2010 2011 2012 2013

Non-life Insurance density (USD)

12

10

8

6

4

2

0 2015

10.0 10.5 11.010.4

Source: ibef.org




India Non-life Insurance market break-up of gross direct premiums (FY16)

Fire

10.0%

Health

12.4%

Others

23.0%

Source: ibef.org, IRDA annual report

Engineering

2.7%

Marine

3.4%

Motor

48.5%

“ Non Life Insurance

penetration of 0.70%

offers non-linear

growth potential to

Life Insurance”

Motor insurance dominates the non-life segment in India

Due to the large number of accidents that causes fatalities and disability, the

Motor Vehicles Act, 1988, mandates (under section 146) that every vehicle should

be compulsorily insured for third party risk. The motor insurance is expected to

rise due to the expected growth in sales of automobile (recording 6% CAGR in the

last 5 years).

10

Growth in non-life insurance premium (USD Billion)

FY06 FY07 FY08 FY09Private

Public

FY10 FY11 FY12 FY13 FY14 FY15 FY16

1.2

3.6

1.9

3.8

2.7

4.4

2.7

4.2

2.9

4.6

3.8

5.8

4.7

6.7

5.1

6.8

5.7

7.2

6.3

7.7

6.1

7.3

CAGR: 7.48%

Source: ibef.org

In FY16, motor insurance accounted for 48.5% and health insurance accounted for

12.4% of the gross direct premiums earned and was valued at USD 6.5 billion &

USD 1.65 billion till March 2016.




Size: USD 3.4 billion Size: USD 13.35 billion

FY04 FY16 (1)

85%

15%54.6%

45.4%

Growing share of private sector

FY04 FY16 (1)

“ Motor insurance

accounts for 48.5%

of total non-life

insurance GDP ”

Source: ibef.org

Health insurance is emerging as an alternative mechanism for financing of health care

India is promising market for personal health insurance; only 15% of the population is

covered by government health insurance and 2.2% by private health insurance.

Though the penetration of Health Insurance is still under 1% of India’s GDP, the

sector continues to be the fastest growing segment in the non-life insurance

industry. Total Health Insurance premium grew 22% to Rs 247.84 bn in FY 2015-16

from Rs 202.55 bn in FY 2014-15. Increase in lifestyle and chronic illnesses like

Diabetes, Cancer and Cardiovascular illnesses along with double digit growth in

medical inflation is leading to an increase in demand for health insurance. As per

industry estimates, the total health insurance market is expected to grow 2X to ~ Rs

500 bn by FY 2020.

11




2021E

2016

Car Commercial Vehicles

2&3 Wheelers

10

3.4

2.4

0.8

30.2

19.76

Vehicle production in India (million units)

Source: ibef.org, SIAM

Source –IRDA Annual Report, 2016

80.15 95.8 108.41 128.82 155.9134.45 42.05 44.82 43.86 49.1116.09 16.68

21.72 28.28 39.46130.69 154.53 174.95200.96

244.48

0

100

200

300

400

500

600

FY12 FY13 FY14 FY15 FY16

Public sector General Insurers Private sector General Insurers Stanalone Health Insurers Industry Total

Trend in health Insurance (HI) Premium Over the past five years (Rs Bn)

“ Health insurance

market estimated

to grow 2x by

FY2020“

Total health spending accounted for only 4.0% of GDP in India in 2012, less than

half the OECD average of 9.3%. Health spending as a share of GDP among OECD

countries is highest in the United States, which spent 16.9% of its GDP on health in

2012.

16.9

11.611.3

10.39.3 9.1

7.6

6.8 6.25.9 5.4

4.0

0

2

4

6

8

10

12

14

16

18

% GDP

Total expenditure excluding capital expenditure Source: OECD Health Statistics 2014,WHO Global Health Expenditure Database

Public Private

12

While India has the highest potential for Health Insurance, the penetration is lowest

compare to western countries.




Crop Insurance has strong potential to grow

Crop insurance market in India is the largest in the world, covering around 30

million farmers. Total sum insured under crop insurance is USD 836.6 million and

Government of India plans to increase the coverage to 50 million during the 12th

Five-Year Plan.

“ Health spending

in India stands at

4% of GDP vs OECD

Average of 9.3%“

Conclusion

Indian insurance industry is seeing good growth due to changing economic

environment, changing government policy and guideline of the regulatory

authority, IRDA have also played a very vital role in the growth of the sector. The

sector will also get some boost with increased awareness about the need for

insurance and growing disposable incomes of middle class.

India has also emerged as attractive destinations for insurance investment

globally to foreign investor, as government increased maximum permissible

shareholding for foreign investors to 49% of paid-up equity capital from 26%. This

led to an inflow in foreign direct investments (FDI) of $1.13 billion in fiscal 2016, an

approximate increase of 170% over fiscal 2015.

13




Source - Agricultural Insurance Company of India Annual Report, Department of Agriculture and Cooperation, IRDA, TechSci Research

“ Massive 170%

growth in FDI inflows

in FY16 over previous

year indicates

growth potential “

Target Price : INR 426

Potential Upside 23.3%

CMP : INR 345

Market Cap (INR Mn)495185

022-6696 5555 www.krchoksey.com

KRChoksey Researchis also available on Bloomberg KRCS<GO>

Thomson Reuters, Factset and Capital IQ

AnalystDinesh Gupta, [email protected], 022 66965609

ICICI Prudential Life

Bajaj Finserv LtdPotential Ideas in Insurance Sector

Shares outs (Mn) 1435.32

Equity Cap (INR Mn)

14353

Mkt Cap (INR Mn) 495185

52 Wk H/L (INR) 350/273

Volume Avg (3m K) 1352.28

Face Value (INR) 10

Bloomberg Code IPRU IN

MARKET DATA

SHARE PRICE PERFORMANCE

Investment Rationale

Strong Financial Performance – Gross premium income in FY16 rose by 25.2% to

Rs 191,644 mn YoY and 23.16 percent in FY15 to Rs 153,066 mn. It was Rs 54,690

mn in Q2FY17, up 5.1 percent over Q2FY16. New business premium (NBP) in FY16

was up by 23 percent to Rs 65,630 mn compared with FY15. Profit grew only by

0.75 percent to Rs 16,527 mn in FY16 and 5 percent to Rs 16,403.5 mn in FY15 on

YoY basis. Profit in quarter ended Sep 2016 was at Rs 4,190 mn (up 1 percent over

Q2FY16). Unit Linked Insurance Plans (ULIPs) comprised 80.1% of I-Pru Life’s retail

annualised premium equivalent (APE) and 72.6% for the H1FY17, I-Pru had Rs

1.13tn of Assets under Management.

High Persistency Ratio & Lower Expense Ratio – I-Pru’s 13th month persistency

ratio is at 82.4% for FY2016, one of the highest in the sector. Expense ratio as of

FY2016 is at 14.6%, one of the lowest among private sector life insurance

companies in India.

Particulars Jun 16 Sep 16 Dec 16

Promoters 80.72 80.72 80.72

FIIs 3.14 3.14 3.5

DIIs 1.8 1.8 1.81

Others 14.34 14.34 13.97

Total 100 100 100

SHARE HOLDING PATTERN (%)


Company Profile : ICICI Prudential Life (I-Pru) is the largest private sector insurance player with a market share of

21.9% in the pvt sector and 11.3% share in the overall industry. IPru is owned by ICICI Bank (67.52%), Prudential

Corporation, UK (25.83%), Hasham Traders owned by Azim Premji (4%), Compassvale Investments owned by

Temasek (2%) & rest by employees. I-Pru has large distribution network comprising of 124155 individual agents and

4500 bank partner branches.

Healthy Solvency Ratio – IPru has a strong capital position with a solvency ratio

of 305.9% at Sep 2016 compared to the IRDAI-prescribed control level of 150%.

Healthy Balance sheet position – Return on Equity (ROE) had exceeded 30% for

each year since fiscal 2012. Value of new business grew from Rs 2,700 mn in

FY15 to Rs 4,120 mn in FY16, representing an increase of 52.6 percent.

Contingent liabilities were more or less stable at Rs 1,987.5 mn at the end of

June quarter of 2016 against Rs 2,006.5 mn in FY16 and Rs 1,969.2 mn in FY15. I-

Pru has not received a shareholder capital injection since FY09 and has paid

annualdividends since FY12.

Valuation At CMP of Rs 345 it is trading at TTM EV (Embedded Value) of 3.4x, I-

Pru has disclosed its H1FY17 Embedded Value (EV) at Rs 148,380 mn (up by 6.4%

from FY2016). We remain positive on I-Pru in medium to long term with price

target of Rs. 426, based on EV of 3.5x FY19E.

Key Risk : •Dependency on ULIPs •Change in bancassurance agreement

•Change in Regulation

50

90

130

Jan-

16

Feb-

16

Feb-

16

Mar

-16

Mar

-16

Mar

-16

Apr

-16

Apr

-16

May

-16

SensexICICI Prudential Life Insurance



CMP : INR 345





Company Profile

ICICI Prudential Life (I-Pru) is the largest private sector life insurer in India by

total premium and AUM in FY16, with a market share of 24.2% (H1FY17) in the

pvt sector and 12.4% (H1FY17) share in the overall industry. IPru is owned by

ICICI Bank (67.52%), Prudential Corporation, UK (25.83%), Hasham Traders

owned by Azim Premji (4%), Compassvale Investments owned by Temasek (2%)

& rest by employees. I-Pru has large distribution network comprising of 124,155

individual agents and 4,500 bank partner branches.

I-Pru relies on a bancassurance tie-up, which contributed 56.1% of the business

generated in H1FY17. I-Pru’s product mix is predominately driven by market

linked products (ULIP), which formed 80.1% of the individual new business

premiums in H1FY17.

7.2%

11.3% 11.3% 12.4%

18.9%

23.0% 21.9%24.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

FY14 FY15 FY16 H1FY17

Total industry

Private sector

I-Pru Market Share in Life Insurance Market

I-Pru Product Mix







CMP : INR 345





High Persistency Ratio & Lower Expense Ratio – I-Pru’s 13th month

persistency ratio is at 82.4% for FY2016, one of the highest in the sector.

Expense ratio as of FY2016 is at 14.6%, one of the lowest among private

sector life insurance companies in India.

Operating Expenses Ratio - 2016

11.0%14.1%

10.9%

15.2% 16.0%

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%

I-Pru HDFC Life SBI Life Max Life Private Sector

13th month Persistency Ratio

82.4%







CMP : INR 345





Healthy Solvency Ratio – I-Pru has a strong capital position with a solvency

ratio of 305.9% at Sep 2016 compared to the IRDAI-prescribed control level of

150%.

Healthy Balance sheet position – Return on Equity (ROE) had exceeded 30%

for each year since fiscal 2012. Value of new business grew from Rs 2700 mn in

FY15 to Rs 4120 mn in FY16, representing an increase of 52.6 percent.

Contingent liabilities were more or less stable at Rs 1987.5 mn at the end of

June quarter of 2016 against Rs 2006.5 mnin FY16 and Rs 1969.2mn in FY15. I-

Pru has not received a shareholder capital injection since FY09 and has paid

annual dividends since FY12.

Valuation

At CMP of Rs 345 it is trading at TTM EV (Embedded Value) of 3.4x, I-Pru has

disclosed its H1FY17 Embedded Value (EV) at Rs 148380 mn (up by 6.4% from

FY2016). We remain positive on I-Pru in medium to long term with price target

of Rs. 426, based on EV of 3.5x FY19E.

327%371% 396% 372%

337% 320% 306%

0%50%

100%150%

200%250%300%350%400%450%

FY11 FY12 FY13 FY14 FY15 FY16 1HFY17

Solvency Ratio (%)

13,857

15,15415,614

16,404 16,527

12,50013,00013,50014,00014,50015,00015,50016,00016,50017,000

FY12 FY13 FY14 FY15 FY16

25%

20%

15%

10%

5%

0%7%

9%

19% 18% 18%

Dividend Payout (%)PAT (Rs in Mn)

Embedded Value for H1FY17

Rs 14,838cr





Target PriceINR 4058

Potential Upside25%

CMPINR 3245


SHARE HOLDING PATTERN (%)



Shares outs (Mn) 159.1

Equity Cap (INR Mn) 795.7

Mkt Cap (INR Mn) 516279

52 Wk H/L (INR) 3479/1575

Volume Avg (3m K) 268.92

Face Value (INR) 5

Bloomberg Code BJFIN IN

MARKET DATA

SHARE PRICE PERFORMANCE

Bajaj Finserv Limited

Company Profile : Bajaj Finserv Limited (Bajaj Finserv) is a financial conglomerate that is engaged in life insurance,general insurance, consumer finance and other financial products through its subsidiary. Apart from financialservices, the company has an operational wind energy asset with a total installed capacity of 65.2 MW. Theportfolio of the company includes 74% stake in the two insurance companies viz. Bajaj Allianz Life InsuranceCompany (BALIC) and Bajaj Allianz General Insurance Company (BAGIC), and 57.53% in Bajaj Finance and BajajFinance has two subsidiaries with 100% holding viz. Bajaj Housing Finance Ltd and Bajaj Financial Holding Ltd.

Particulars Jun 16 Sep 16 Dec 16

Promoters 58.35 58.35 58.35

FIIs 7.89 6.12 6.19

DIIs 6.77 8.32 8.44

Others 26.98 27.21 27.02

Total 100 100 100


Bajaj Finance (BFL) is the largest financier of two-wheelers and consumer durables

in India. It has a diversified product suite comprising nine key business lines:

vehicle loans (two- and three-wheelers manufactured by Bajaj Auto), consumer

durable loans, personal loans, mortgage loans, small business loans, loans against

securities, commercial finance, and rural finance.

Bajaj Allianz General Insurance Company (BAGIC) is the second largest private

sector general insurer in India, owing to its significant retail focus, wide

distribution network and customer centric business approach. Retail (motor+

health) forms ~75% of Gross Written Premium (GWP) and is expected to continue

to contribute a major portion of the overall business.

Bajaj Allianz Life Insurance Company Ltd. (BALIC) is 4th largest private player in India

in FY16 by new business with pan India distribution reach. It is one of most profitable

private sector insurers with highest ROEs amongst life insurance companies. BALIC

has a wide range of products in traditional and unit-linked insurance business.

Bajaj Finserv has 138 wind mills in Maharashtra with total installed capacity of 65.2

MW, power from which is supplied to Bajaj Auto.

Valuation Bajaj Finserv is a diversified financial services group spanning life

insurance, general insurance, and lending, with a pan India presence. Bajaj Finserv

remains a debt free company; it is also a listed opportunity to participate in India’s

insurance sector. Given Bajaj’s strong leadership in the domestic market and

presence in growing business verticals, we see strong earnings visibility and better

return profile for the consolidated entity. Moreover, value unlocking from the

insurance business stake sales form another value trigger for Bajaj Finserv.

Based on SoTP valuation, we have target price of Rs 4058 for Bajaj Finserv, we have

upgraded both life and general insurance valuations in the wake of recent deals &

listing in the sector.

Key Risk • Impact of demonetization • Increasing competition in insurance and

finance business. • Regulatory risks

20406080

100120140160180

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep-

16

Nov

-16

Sensex Bajaj Finserv Ltd






Potential Upside25%

CMPINR 3245






Bajaj Finance (BFL) is the largest financier of two-wheelers and consumer

durables in India. It has a diversified product suite comprising nine key business

lines: vehicle loans (two- and three-wheelers manufactured by Bajaj Auto),

consumer durable loans, personal loans, mortgage loans, small business loans,

loans against securities, commercial finance, and rural finance. The company

has an asset under management (AUM) of Rs 442290 mn as on FY16, that

witnessed strong growth at 42% CAGR in the past 5 years and reported strong

profit of Rs.12790 mn in FY16.

Bajaj Finance is the highest profit making segment with PAT growing at 59%

CAGR in FY10-15 to Rs 8980 mn in FY15. As of Dec 31, 2016 its AUM mix stood as

Consumer (45%), SME (39%), Commercial (12%), and Rural (4%). For the first six

months of 2016-17, the company reported PAT of Rs.8320 mn on total income

(net of interest expense) of Rs.28280 mn. As on Sep 2016, the company has Rs

523320 mn of Assets under Management (AUM) with a net NPA of 0.43%.

BFL's Net Interest Income (Rs in Mn) BFL's profit after tax (Rs in Mn)






Potential Upside25%

CMPINR 3245





Net NPA (%)

0.80%

0.12%

0.19%0.28%

0.45%

0.28%

0.00%0.10%0.20%0.30%0.40%0.50%0.60%0.70%0.80%0.90%

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

•Bajaj Allianz General Insurance Company (BAGIC) is the second largest private

sector general insurer in India, owing to its significant retail focus, wide

distribution network and customer centric business approach. Retail (motor+

health) forms ~75% of Gross Written Premium (GWP) and is expected to

continue to contribute a major portion of the overall business.

BAGIC Gross written premium (GWP) for FY2016 grew by around 11.3%, from Rs

53010 mn in FY15 to Rs 59010 mn in FY16. Net earned premium for FY16 was Rs

45720 mn, an increase of 14% over the previous year figure of Rs 38320 mn. PAT

grew by 0.3% from Rs.5640 mn in FY16 from Rs.5620 mn in FY15. During

6MFY17, the company reported PAT of Rs. 3660 mn on GWP of Rs. 37060 mn.

As on 31 March 2016, BAGIC’s solvency margin was at 251%, which is well above

the normal regulatory requirement of 150%.

Source – Company Presentation






Potential Upside25%

CMPINR 3245





ROE (%)

14%

27% 28% 29%23%

0%5%

10%15%20%25%30%35%

FY2012 FY2013 FY2014 FY2015 FY2016

BAGIC's profit after tax (Rs in Mn)

3676041090

4584053010

59010

2696032030

37610 4009045720

0

1000

2000

3000

4000

5000

6000

7000

FY2012 FY2013 FY2014 FY2015 FY2016

Gross Written Premium (GWP) (Rs in Mn)

Net Written Premium (NWP) (Rs in Mn)

Bajaj Allianz Life Insurance Company Ltd. (BALIC) is 4th largest private player in

India in FY16 by new business with pan India distribution reach. It is one of most

profitable private sector insurers with highest ROEs amongst life insurance

companies. BALIC has a wide range of products in traditional and unit-linked

insurance business.

BALIC reported solvency ratio of 793% as on March 30, 2015. The company reported

profit after tax (PAT) of Rs.8790 mn on Gross Written Premium (GWP) of Rs.58970

mn during FY16 against the PAT of Rs.8762 mn on GWP of Rs. 60170 mn during FY15.

During 6MFY17, the company reported PAT of Rs. 4460 mn on GWP of Rs. 24510 mn.

Its solvency ratio stood at 784% as on Sep 30, 2016.






Potential Upside25%

CMPINR 3245

Market Cap (INR Mn)516279.5




BALIC's AUM (in Rs bn)

Bajaj Finserv is a diversified financial services group spanning life insurance,

general insurance, and lending, with a pan India presence. Bajaj Finserv

remains a debt free company; it is also a listed opportunity to participate in

India’s insurance sector. Given Bajaj’s strong leadership in the domestic market

and presence in growing business verticals, we see strong earnings visibility

and better return profile for the consolidated entity. Moreover, value

unlocking from the insurance business stake sales form another value trigger

for Bajaj Finserv.

Based on SoTP valuation, we have target price of Rs 4058 for Bajaj Finserv, we

have upgraded both life and general insurance valuations in the wake of recent

deals & listing in the sector.

SOTP Valuation (Rs in Mn)

Life Insurance Business (Stake - 74%) 3,02,462

General Insurance Business (Stake - 74%) 1,08,609

Bajaj Finance (Stake - 57.8%) - 30% discount to market cap 2,34,518

Total Value 6,45,588

Value per share (Rs Per Share) 4,058





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