Bajaj Finance continued to deliver robust growth in loans and earnings. Buoyancy in consumer finance business, new initiatives of cross selling business loans and providing online/ mobile loans have made the management more confident of maintaining its high growth trajectory. Bajaj Life and General Insurance continue to remain weak.
We value the general insurance business at 2.6X PBR FY2017E (medium-term RoE of 25%) and life insurance business at 1X EV (assuming 10% near-term operating RoEV).
Bajaj Finance delivered 42% yoy growth in PAT to Rs 2.79 bn, driven by 43% NII growth. Loan book growth remained strong, grew 36 yoy, driven by loans to consumers (up 42% yoy) and small businesses (up 29% yoy). We expect Bajaj Finance to report 20% RoE and 31% PAT CAGR between FY2015 and FY2018E, driven by 28% CAGR in loans; EPS growth will be lower at 26% post recent capital issuance.
Despite several levers to its business, we conservatively build 23% loan growth in FY2017E and FY2018E (as compared to 35% between FY2013 and FY2016E) and marginal NIM compression. High and stable (42%) share of consumer loans will ensure NIM and operating expenses ratios remain high.
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