Bajaj Finserv (Not rated) - Q2 FY21 Conference Call Takeaways - YES Securities

BAGIC

- Crop claim ratios - Q2 Kharif season, Q3 claim determination, generally conservative on provisioning, equal weight strategy for overall crop business, Kharif claims will arise in Q3,

- Health and COVID claims - overall premium market share 7%, Health premium market share 4%, COVID claim share is 4%, difficult to predict future claim trends, COVID claims rising exponentially, COVID claims higher by 75% when compared with non COVID claims, non COVID are down yoy but have started moving up, upwards of 90% retail health business is indemnity

- Fire claims - specific events hit Nisarg, unseasonal rains will impact claims

- Motor business - CV sales declined impacted, focus on passenger CVs which saw sharp fall in demand; Motor claims moving up 80-85% of pre COVID claims, TP claims will increase with ports opening up, higher loss ratios likely to be higher than pre COVID as normalizes, motor claims have moving up, delayed claim settlement in TP segment causing interest payouts

- Claim Reserving - low reserving not good strategy because of initial low claims, SARS experience saw initial dip in hospitalization and then picked up, TP claims likely to inch higher, Rs300crs total provision is adequate

- Micro insurance growth - pocket insurance products people who didn't want to commit large premiums, or second set of customers who want their sum assured to be protected for routine claims, internationally few companies went all out but their balance sheet weakened and then they shifted to traditional products, in BAGIC doing quite a few products such as mobile insurance, railways cover, these products cannot be large but introduces customers to insurance

- Cost cutting - cost ratios 29% to 25.7% reduced, Q1 expenses lower because of lockdown, some structural in nature 1) employee - new partnerships getting adding people, from H2 of last year started rationalizing through enhancing productivity, moved to quarterly incentives from Annual bonus, 17-18% of wage bill saving, 2) infrastructure - 117 branches earlier, evaluated the size in digital evolution, rationalized few offices in multi branch cities, reducing size of offices (~30 offices) by moving to mobile devices, renegotiated rentals with landlords, 50% of the savings are structural in nature

BALIC

- Product mix - Strong demand for guaranteed return products and protection, protection demand qoq decline because of rate hikes, Group protection (Credit life) improved but still below pre COVID levels

- Non-par hedging: 100% hedge - 70% partly paid up bonds and rest by FRA, monitor guarantees every quarter, risk we take is dependent on the capital

- Standard term insurance product - very good move to introduce simple product, low cover size currently doing Rs50lakh plus, pricing will be based on data, spread improves, potential for reinsurers will increase, will be very careful in pricing

- Sachet products - telecom and e-commerce have picked up, for life it is lesser vs general insurance, have been right in not entering in this segment as existing players have lost money, will be careful in this business

- Cost cutting - Rs110crs opex down yoy, 400bps down to 18%, 50 branches - looking at closure of branches, travel and training reduced, renegotiated rental agreements, despite of significant investments in new banking relationships cost cutting

- Protection business - down qoq, reinsurance price hike 25-30%, Q1 trends difficult to replicate, tame down expectations, H2 will be tad better than Q2

- Group credit life - down yoy, Q2 positive territory, Q3 onwards improvement should sustain

- Persistency drop - high ticket items across all channels but more in agency channel, customers trying to time the market, hope for an improvement in future

- Axis Bank has a strong focus on long term products

Others aspects

- Outlook: Laying strong focus on profitability over growth; Strengthening the balance sheet is the focus; Looking for growth in H2 across all subsidiaries

- New business: Finserve Health and MF - Board has approved AMC and filed for approval, process is on; Health business capital commitment over Rs100crore, will continue to evaluate, launched APP for the entire health ecosystem, Bajaj Financial Securities - reported a profit in H1, objective is to get more clients, intention is not to make a large profit, addition to the wholistic financial sector offerings from Bajaj Group

- Overall cost cutting thought process: This year provides opportunity to cut costs for five years - identified three kind of costs 1) which needs to be cut immediately, 2) where efficiency improvement is possible, and 3) investments to improve efficiencies. IT costs may not increase in proportion to business as will continue to invest, infrastructure costs will come down, employees costs have improved owing to better productivity - merger of PSU banks have added large number of branches

Shares of BAJAJ FINSERV LTD. was last trading in BSE at Rs.5872.3 as compared to the previous close of Rs. 5905.9. The total number of shares traded during the day was 39221 in over 10178 trades.

The stock hit an intraday high of Rs. 6079.25 and intraday low of 5830. The net turnover during the day was Rs. 234260124.

Source : Equity Bulls

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