BAJAJ FINSERVE - ATTRACTIVELY VALUED

Bajaj FinServ is a company which was created out of the three way demerger which Bajaj Auto undertook. Bajaj FinServ was one of the companies which were created as a result of the demerger. Bajaj FinServ has got several businesses in its portfolio and most important is the insurance business of the Bajaj group which is Bajaj Alliance Life Insurance and Bajaj Alliance General Insurance
. Bajaj FinServ holds 74% in each of these two companies.



Besides insurance, the financial distribution business of the Bajaj group is Bajaj Auto Financial Distributors Ltd. Bajaj FinServ is a holding company for that and they also hold a substantial stake in Bajaj Auto Finance, besides the wind power business of the group.



This company holds 74% stake in both the life and the general insurance business of this group. The insurance business has been growing at a good pace for both the life and general insurance. In fact, the general insurance company is already a profit-making company. They made a profit of close to Rs 100 crore for FY08.



If you look at the balance sheet of Bajaj FinServ at the current market price, the market cap of this company is just about Rs 1,600 crore. The company has got cash and cash equivalents of more than Rs 800 crore on March 31, 2008. Assuming a 10% annualised rate of return, the holding would be valued at around Rs 860-870 crore as of today. They are holding Bajaj Auto Finance whose market value at the current price is close to Rs 100 crore. So, you are left with the insurance business which is available at a valuation of about Rs 600-700 crore at the current market price. They have a wind power business where the gross block is about Rs 300 crore. At the same time, there is a deferred tax liability of close to Rs 300 crore in this business.



The triggers for the stock can be once the insurance bill is table in Parliament and the later gives it approval for increase of foreign company’s stake from 24% to 49%. That could be a big trigger for this stock. In the event of both these companies offering higher stake to foreign stakeholders, it would lead to a complete re-rating of the stock.



Another comforting factor is that the promoters have been increasing their stake by buying from the market. If you see the shareholding pattern of the company between September 2008 and the disclosures which they have made to the stock exchange recently, one of the group companies which is Bajaj Holdings has already increased stake by more than 4.5% in the last 60-75 days. So, given all these factors, the stock is available at attractive valuation, and the real kicker can come from the offloading of stake in the insurance business.





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