Private Client Research

Rating

Buy

Sector

Finance - NBFC

Company

Bajaj Holdings & Investment Ltd

Finance - NBFC

May 30, 2018

Sensex: 34906.11

CNX Nifty: 10614.35

NSE: BAJAJHLDNG

BSE: 500490

Reco Price

Rs. 2760.00

Price Target (1 Year)

Rs. 3400.00

Upside

23.19%

Date

May 30, 2018

Sensex

34906.11

CNX Nifty

10614.35

Exchange

Code

NSE

BAJAJHLDNG

BSE

500490

Stock Data

CMP (Rs)

2763.75

Face value (Rs)

52 Week Range (Rs)

3025.00 - 1750.00

Market cap (Rs Crores)

30807.16

Price To Book Value (x)

1.42

P/E Ratio (x)

9.56

EV/EBIDTA (x)

34.00

One Year indexed Stock Performance

Bajaj Holdings & Investment Ltd Sensex

Return (%)

12m

36m

Absolute

2.34

-2.94

33.75

109.21

Sensex

-0.72

5.30

12.02

25.34

Shareholders

(in %)

31-Mar

Promoter

44.32

Public

55.68

Others

0.00

Total

100

+91 22 6639 3000

research@stockaxis.com

Growth in the Auto sector as well as insurance business will be beneficial for the holding company

Strong growth in the Auto Sector:
Domestic Business
Bajaj Auto Ltd (BAL) is a market leader in sports bikes (premium segment). However, BAL witnessed de-growth during Q1FY2018 mainly due to structural changes such as shift from BS-3 to BS-4 (BS or Bharat Stage is an emission standard to curb emission levels from motor vehicles). BS-3 vehicles were banned from being sold from April 1, 2017 and all vehicles had to adhere to BS-4 norms. Additionally, the implementation of GST resulted in loss of market share. The company expects a demand recovery in the domestic market during the coming quarters on the back of new bike models, viz.V-15 and V-12 gaining traction. The company expects both these models to set a new trend with their new unique designs. The company is also aggressively promoting its premium cruiser motorcycle 'Dominar' on the back of the forthcoming festive season and expects voluminous growth. Good monsoons have led to improved rural sentiments, which will also propel the domestic demand for motorcycles. The company also expects an improvement in its three-wheeler sales in the rural markets; additionally new rickshaw permits (Bajaj has the highest share in the 3-wheeler passenger vehicles segment) will further boost profitability for the company.

Exports to revive
Due to falling commodity prices, exports to international markets such as Nigeria, Egypt and other African and Latin American markets witnessed a slowdown in demand which impacted BAL's revenues. Hence, the company gradually shifted its focus to countries such as Turkey, Indonesia, Myanmar and Thailand. With the recovery in crude oil prices, the company expects a revival in the export market. Exports provide a higher margin and healthy traction from this segment will further improve the company's sales and profitability.

Strong performance of Bajaj Finserv:
Consumer Finance Business
Bajaj Finserv Ltd (BFL) has been growing aggressively since the past few years and is one of the few companies that has been able to maintain its asset quality. The company is expected to deliver strong growth in the future as well based on the expectation of growth of the consumer finance business due to higher demand for consumer durables led by a young population and rising income levels. During Q1FY18, AUM grew by ~43% YoY and by 16% QoQ led by the consumer finance division. Recently, BFL has ventured into mortgage loans and SME loans which are further expected to enhance growth opportunities as only about 40% of SMEs have access to formal financial funding, and mortgage penetration in India is currently at modest 9%.

Insurance Business
Bajaj Allianz General Insurance Company (BAGIC) is a leading private player in the general insurance business. It has grown at a CAGR of 18% in the last 5 years from FY2013 to FY2017 and has gained around 6% market share in the general insurance business. The company further expects to grow the insurance business on the back of higher retention and high quality underwriting. Apart from the growth in the core segment i.e. motor and property insurance, the company is seeing vast opportunity in crop insurance. During Q1FY18, the company underwrote business of Rs. 36 crores in crop insurance against Rs. 9 crores from the previous quarter.

Bajaj Allianz Life Insurance Company (BALIC) is undergoing a transformation by concentrating more on the retail segment by focusing on selling more individual regular premium policies. The company's individual rated premium has grown by 41% in FY17 against the industry growth of 21%. The AUM of BALIC has grown by 12% to Rs. 49,270 crores in FY17 from Rs. 44,107 crores during the previous year.

Industry

Automobile
The Indian automobile industry is one of the largest in the world. The industry accounts for 7.1% of the country's Gross Domestic Product (GDP). The two-wheeler segment with 81% market share is the leader of the Indian automobile market owing to a growing middle class and a young population. Moreover, an expanding rural market will further aid the growth of the sector. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the two-wheeler and four-wheeler market in the world by 2020.

Insurance business
Government's policy of insuring the uninsured has gradually pushed insurance penetration in the country and has reached 3% in FY16 and crossed 4% in FY17. The number of lives covered under Health Insurance policies during 2015-16 was 36 crores which is approximately 30% of India's total population. The number has seen an increase every subsequent year as 28.80 crore people had the policy in the previous fiscal. India's life insurance sector is the biggest in the world with about 360 million policies which are expected to increase at a CAGR of 12-15% over the next five years. The insurance industry plans to hike penetration levels to 5% by 2020.

Profile

Bajaj Holdings & Investment Ltd (BHIL) is a Non-Banking Financial Company (NBFC) which came into existence upon demerger in 2007-2008 and focuses on new business opportunities in the financial services segment. The company was de-merged in December 2007 whereby its manufacturing undertaking was transferred to Bajaj Auto Limited (BAL) and its strategic business undertaking consisting of wind farm business and financial services business vested with Bajaj Finserv Limited (BFS). Post-demerger, BHIL has strategic stakes of 31.54 % in BAL, 39.29% in BFS and 24% in Maharashtra Scooters Ltd (MSL). BAL is India's largest manufacturer of two and three wheelers with 18% of its total sales coming from exports. BFS is a financial services company which offers consumer finance, infrastructure finance, general and life insurance and wealth management services. BFS also has interests in wind farms with 138 windmills and a total installed capacity of 65.2 MW. All the businesses and all properties, assets, investments and liabilities of erstwhile Bajaj Auto Ltd, other than the manufacturing undertaking and the strategic business undertaking, now remain with BHIL.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

DESCRIPTION	Mar-16	Mar-17	Mar-18	Mar-19 E	Mar-20 E
Net Sales	469.84	842.11	959.89	1055.88	1161.47
Growth (%)		79.00%	14.00%	10.00%	10.00%
Total Expenditure	41.31	214.43	69.89	105.59	116.15
EBITDA	428.53	627.68	890.00	950.29	1045.32
% Margin	91.20%	74.50%	92.70%	90.00%	90.00%
Other Income	6.85	7.97	4.94	8.00	8.00
Operating Profit	435.38	635.65	894.94	958.29	1053.32
Interest	0.00	0.00	0.00	0.00	0.00
PBDT	435.38	635.65	894.94	958.29	1053.32
Depreciation	5.48	5.39	5.42	5.50	5.50
Profit Before Taxation & Exceptional Items	429.90	630.26	889.52	952.79	1047.82
Exceptional Income / Expenses	0.00	0.00	0.00	0.00	0.00
Tax	88.31	134.57	91.40	285.84	314.35
Profit After Tax	341.59	495.69	798.12	666.95	733.47
Share of Associates	1923.65	1977.50	2076.38	2180.19	2250.00
Consolidated Net Profit	2265.24	2473.19	2874.50	2847.14	2983.47
Adjusted EPS	203.50	222.20	286.25	239.21	263.06

Source: Stockaxis Research, Company Data

Valuation

Bajaj Holdings, being a holding and investment company, has 31.5% stake in Bajaj Auto and 39.3% stake in Bajaj Finserv Ltd. which if combined, is valued at Rs. 61,370 crores. Apart from this, company also has other equity investments of Rs 2,501 crores and fixed income securities worth Rs 4,304 crores. Adding all its investments results in a valuation of Rs 68,175 crores. We value the company on SOTP (Sum of The Parts) basis with a discount of 40%, which comes at around Rs 37,500 crores, which translates to a target price of Rs 3,400 per share.

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