Bajaj Finance and Bajaj Finserv: Key plays in financial services

Image result for Finance
The NBFC arm is a dominant player in consumer durable financing segment.
Bajaj FinservBSE 0.51 % and Bajaj FinanceBSE 0.77 % have been sizzling on the bourses and may remain so in the next leg of the rally as its businesses from lending to insurance are showing strong growth.

That both the stocks are at near life highs on a day when the Nifty ended above 10,000 reflects their acceptance among investors as key plays in the financial services sector.

Bajaj FinservBSE 0.51 %, the holding company of Bajaj Finance, Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance gives diverse exposure to investors in fast growing businesses.

“We stay positive on Bajaj Finserv due to sustained healthy performance of Bajaj Finance, strong growth in general insurance business and gradual traction in individual new business premium,” said ICICI Direct in a report.

It has a price target of Rs 5,170 a share, compared with Wednesday’s close of Rs 4,951. Last week, Bajaj Finserv reported 22 per cent increase in consolidated net profit at Rs 655 crore during the first quarter ended June 30, aided by growth in NBFC and general insurance business.

Bajaj Finance is a non-banking finance company, lending for purchase of consumer durables, housing loans and for small and medium enterprises. The stock hit its all time high of Rs 1,694 and closed at Rs 1,686.

The NBFC arm is a dominant player in consumer durable financing segment and continues to increase its market share in the consumer business. It has recently cut down exposure to loan against property and two wheeler segment, while ensuring high return on equity.

Axis Direct in its report expects the growth trajectory for Bajaj Finance will remain intact on accelerated shift to organised market and expects 30 per cent CAGR over FY17-19 estimates.

The general insurance arm, has been the most profitable company in its sector. The company saw profit go up by 62 per cent to Rs 213 crore in the quarter. It is a strong business model generating return on equity in excess of 24 per cent, reporting underwriting profit on less than 100 per cent combined ratio. Its extensive retail focus has lead to market share of 6.7 per cent in gross written premium.