Bajaj Finserv Ltd’s profit doubled from a year ago and much of the gains were from the life insurance segment that remains the backbone of the company, despite recent rules making life tougher for insurance firms.
It doesn’t make sense to look at the fourth quarter numbers in isolation, because of the Insurance Regulatory and Development Authority’s (Irda) rules, which recommend that profits from the “policyholder account” can be transferred to the “shareholder account” at the end of the fiscal.
For fiscal 2010-11, the life insurance segment’s earnings before interest and tax (Ebit) almost doubled. The gains appear all the more impressive because of a 16% fall in gross written premium.
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Bajaj Finserv’s managing director Sanjiv Bajaj said that the company was choosy in chasing new business opportunities. It could also be due to the fact that the more profitable renewal business fell only 12% compared with a 22% decline in new premia. The renewal business accounts for nearly two-thirds of the life insurance business.
Not that this business alone breathed life into the company’s numbers. Its lending business—carried out through subsidiary Bajaj Finance Ltd—increased its profits 178% from a year ago. Bajaj Finance’s advances increased 80% from a year ago, driven mainly by consumer durables and vendor financing. The asset quality also looks strong enough for Bajaj Finserv to reduce loan loss and provisions by 21% from a year ago.
As recent factory output numbers show, Indian consumers are still shopping and the outlook for this business isn’t subdued like say, the infrastructure segment.
If any business disappointed, it was the general insurance business, where Ebit dipped by two-thirds from a year ago. That mainly happened due to an almost fivefold increase in the company’s contribution to a common kitty maintained by the general insurance industry to pay for motor losses. That jump in contribution isn’t unique to Bajaj Finserv.
The company’s shares have outperformed broader indices since the beginning of the last fiscal. However, the outlook for the life insurance business largely influences the stock. That is not very rosy after Irda has introduced a host of new rules ranging from capping expenses, ensuring a lock-in period for policies and a minimum guaranteed return on pension products.
Graphic by Yogesh Kumar/Mint
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