Bajaj FinServ’s Q1FY2010 results clearly indicate the company’s shifting focus towards profitable business growth via control of costs and underwriting of the high-margin business in the insurance segment.
The quarter gone by continued to witness lower volumes in the insurance business due to its seasonal nature and the ongoing slowdown in the industry.
However, we believe the expected economic recovery in H2FY2010 coupled with the stable equity markets should help the company to achieve a double-digit growth in the new business premium in the current fiscal.
We value the life insurance business based on its new business achieved profit (NBAP) and the general insurance business based on its net worth. The company holds a 40.53% stake in BAFL.
We have valued this stake at its book value by giving it a 50% holding company discount. However, we have valued the insurance business of the company at an economic interest of 26%, which could go up to 51% and provide further upside to our estimate.
We value the company based on the sum-of-the-parts valuation method and maintain our BUY recommendation on the stock with a revised price target of Rs396, as we roll over our valuation multiple (for the insurance business) to FY2011.