Bajaj Finserv To Benefit From Improved Profitability In Insurance Biz, Says Jefferies; Sees 24% Upside

Jefferies has projected a 24% potential upside for Bajaj Finserv Ltd. on initiation as it regards the company as 'grooming financial venture'. The brokerage has rated the stock 'Buy' and given a target price of Rs 2,240 apiece.

Bajaj Finserv is the holding company of the financial business and is set to gain advantage from lower interest rates and improved profitability in its insurance business. The company is also investing in new businesses like healthcare, mutual fund, and technology which will add option value, according to Jefferies.

Jefferies has estimated that Bajaj Finserv will likely grow its core earnings at 22% CAGR. The company will likely leverage on its lending and non-lending platforms and it is relatively insulated from economic cycles, Jefferies said.

Bajaj Finserv is likely to see upside because of lower credit cost at Bajaj Finance Ltd., its auto business wing Bajaj Auto Ltd., and better improvement for Bajaj Allianz, Jefferies said.

Bajaj Finserv owns a 51% stake in Bajaj Finance which is India's one of the best-run non-banking financial services companies, Jefferies said. The brokerage is seeing 23% CAGR in loans over financial year 2025 and 2028 and expects net interest margin from a fall in interest rates.

Jefferies has rated Bajaj Finance with a target price of Rs 1,100 apiece, which implies a 24% upside from Wednesday's closing price.

In Bajaj Allianz, the holding company owns a 74% stake and it will increase to 75% as the insurance business is selling stakes. Jefferies is seeing Bajaj Allianz growing at a rate of 15% CAGR in premiums over financial year 2025 and 2028 and its combining ratio improving to 101%. Bajaj Allianz's profit may grow at 14% CAGR.

On the other hand its life insurance wing, Bajaj Allianz Life Insurance, is taking steps to improve its profitability through a combination of portfolio change and a better pricing of unit-linked insurance plan, more protection attachment and cost control, Jefferies said.

Bajaj Finserv's new businesses Bajaj Asset Management, Bajaj Finserv Health and Bajaj Finserv Direct are still incurring losses because of lower scale. However, Jefferies believes that the opportunities in these sectors are large and the company can leverage through execution.

The only risk for the company is aggressive expansion from Jio Financial Services and competition from public-sector unit.