Bajaj Finserv justifies the rise in share price
Bajaj Finance shares have trebled since February last year, on the back of its impressive growth
Bajaj Finserv Ltd has reported decent results for the fiscal year that ended March, almost as if to justify the over 75% rise in its share price in the past year. Its financing arm, Bajaj Finance Ltd, reported a strong 25% growth in net profit to Rs.898 crore, riding piggyback on a 26.8% growth in net interest income. The momentum, more or less, was maintained in the January-March quarter. The financing arm plans to raise upto Rs.1,800 crore through a qualified institutional placement and a warrants issue to promoters to finance future growth. Bajaj Finance shares have trebled since February last year, on the back of its impressive growth. It looks like generating demand for its share issuance shouldn’t be a problem.
Growth in the company’s general insurance arm was even more impressive. Net profit at Bajaj Allianz General Insurance Co. Ltd rose 37% to Rs.562 crore. Importantly, the combined ratio of claims and expenses fell to 96.7% of premium earned, generating a decent underwriting profit for the company. The fact that this happened despite the floods in Kashmir and the cyclone in eastern India will come as a big relief to investors.
The life insurance subsidiary, too, bounced back after three successive quarters of declines in new business premium collections. New business rose by 37% year-on-year in the March quarter. In the first quarter of 2014-15, Standard Chartered Bank had ended an agreement with Bajaj to distribute its life insurance products. It had accounted for about 10% of the share of distribution. While the void impacted performance for most of 2014, the company appears to have made good by growing its agency business in the first three months of the new calendar year.
Of course, it remains to be seen if the performance in the life insurance business can be sustained—in any case, in this business, only the fine print (which isn’t yet available) reveals how exactly the company performed.
Also, things remain murky on the transfer of shares by Bajaj Finserv to Allianz SE, subsequent to the increase in foreign direct investment in insurance companies to 49%. According to the agreement between the companies, Bajaj Finserv will receive only a nominal value along with a 16% annual return since 2001. But norms announced by the central bank require such transfers to happen at fair value. If the Reserve Bank of India’s norms prevail in this case, it will result in an upside for Finserv. With its core businesses doing well, investors have little to complain.
The writer doesn’t own shares in the above-mentioned companies.
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