Bajaj Finserv: Analysts positive on the stock for long term
While Bajaj Finserv's life insurance business continues to drag, its other segments will boost profits.
Due to recent regulatory challenges, the life insurance business has been under pressure for some time now, and its segmental profit before tax and finance cost in the fourth quarter dropped to Rs 1,038 crore from Rs 1,150 crore during the same period last year.
Though new business premium has contracted at the industry level, Bajaj Allianz Life Insurance was able to show a modest increase in its business premium. Despite this, the total premium collection decreased due to the continued fall in renewal premium. The life insurance business may contract in 2013-14 as well.
The other two divisions continue to do well. The segmental profit before tax and finance cost of Bajaj Allianz General Insurance in the fourth quarter stood at Rs 87 crore compared with a loss of Rs 59 crore during the same period last year. Bajaj Finance, a non-banking finance company engaged in consumer finance, SME finance and commercial lending, has also shown decent growth in the previous quarter.
Its segmental profit before tax and finance cost in the fourth quarter was Rs 229 crore, much higher than the Rs 133 crore it earned during the same period last year. Bajaj Finance's ability to sustain revenue and net profit growth during the ongoing macroeconomic headwinds demonstrates that this company, with its well-diversified lending portfolio, will be able to report much better numbers when the economy finally turns around.
The continued stress in the life insurance business has brought down the valuation of Bajaj Finserv to much desired levels. However, the company is expected to report decent numbers in the coming quarters due to the solid performance by its other two divisions. Any improvement in the life insurance business, which is expected in the next 6-12 months, should provide additional upside given its solid background there.
Selection methodology: We pick the stock that has shown the maximum increase in consensus analyst rating during the past month.
Consensus rating is arrived at by averaging all analyst recommendations after attributing weightages to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell). An improvement in rating indicates that the analysts are becoming more bullish on the stock. To make sure that we pick only companies with a decent analyst coverage, this search will be restricted to stocks that have been covered by at least 10 analysts.