Bajaj Insurance Arms On Path To IPO With Allianz Exit

Allianz SE bowing out of Bajaj Group's insurance ventures paves the way for the Sanjiv Bajaj-led conglomerate to take full control and potential value unlocking of these entities.

Bajaj Finserv Ltd., has been negotiating for years to buy its German strategic partner out of its insurance arms Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance, which it has avoided listing. The two partners have now agreed on a transaction where Bajaj Finserv promoters will acquire Allianz's stake in the insurance ventures.

The deal values the life insurance business at Rs 40,000 crore, and the general insurance business at Rs 53,000 crore. By this yardstick, Bajaj Allianz Life Insurance will be valued at 1.8 times the price-to-embedded value, and Bajaj Allianz General Insurance at a price-to-earnings multiple of 28 times the FY25 estimates, aligning with current market trends as insurance stocks have corrected in the last three months.

• Holds 36.68% in Bajaj Auto Ltd., 41.56% in Bajaj Finserv, and 51% in Maharashtra Scooters Ltd.

• Jamnalal Sons Pvt. holds 18.01% in Bajaj Holdings.

• Major revenue source: Dividends from investee companies, primarily Bajaj Auto.

• Received Rs 2,500 crore in dividends and buybacks from Bajaj Auto in fiscal ending March 2024.

• Over the last three years, got Rs 1,350 crore annually from Bajaj Auto dividends (Rs 140 per share for the last three years).

• In the current fiscal far, received dividend of Rs 80 per share, with a final dividend expected alongside Q4 earnings.

• Bajaj Holdings invests its income in debt, ETFs, mutual funds, and equities (both listed and unlisted).

• As of March 2024, equity investments stood at Rs 10,416 crore, including NSE Ltd., ICICI Bank Ltd., and Bajaj Electricals Ltd.

• Total investments amount to Rs 19,288.90 crore, with fair value at Rs 16,399.09 crore.

Under the agreed upon deal, Bajaj Holdings & Investment Ltd. will pay Rs 18,553 crore to Allianz for a 19.95% stake in both life insurance and general insurance arms. Jamnalal Sons will acquire a 5.04% stake in each entity for Rs 4,687.2 crore. Bajaj Finserv will acquire 1.01% in each entity for Rs 939.2 crore, raising its stake to just above 75%.

The deal is expected to conclude by early 2026, allowing Bajaj-owned insurance companies to realign their businesses in preparation for a potential IPO in late 2026 or 2027. The IPO is likely to be an offer for sale, enabling promoter entities to monetise their stakes.

Funding for the acquisition is likely to play out like this:

a. Bajaj Holdings may liquidate some equity investments to fund the Allianz stake acquisition in phases.

b. Bajaj Auto may increase dividend payouts or announce another buyback in the coming quarters.

c. Bajaj Holdings may have to raise short-term debt to finance the acquisition.

For Bajaj Holdings & Investment shareholders, the acquisition makes sense only if the stake is monetised for future returns. Currently, Bajaj Holdings derives most of its income from Bajaj Auto dividends, with marginal contributions from Bajaj Finserv. Shareholders may question capital allocation if the stake is not monetised.

Thus, Bajaj insurance companies are likely to list in the next two to three years, subject to market conditions.