Shares of Bajaj Finserv Ltd. saw a significant rise of 4% in Wednesday's trading session, reaching a high of Rs 1,790. This surge occurred despite investment bank Goldman Sachs maintaining its 'Sell' rating on the diversified financial services company and lowering its 12-month target price to Rs 1,690 from Rs 1,780.
The brokerage's assessment indicated that Bajaj Finserv's Q2 FY27 performance was largely in line with expectations. Strong growth observed in Bajaj Finance and Bajaj Life was partially counterbalanced by a weaker underwriting performance from Bajaj General.
Goldman Sachs' Revised Outlook
Goldman Sachs has adjusted its earnings per share (EPS) estimates for Bajaj Finserv for fiscal years 2027 to 2029, reducing them by approximately 4%. This revision incorporates assumptions of faster assets under management (AUM) growth and improved profitability within Bajaj Life, while simultaneously factoring in lower profitability expectations for Bajaj General.
The updated target price of Rs 1,690 is derived from Goldman Sachs' sum-of-the-parts valuation framework, which assesses the value of individual business segments to arrive at a consolidated company valuation.
Segmental Performance Breakdown
Bajaj Finance: A Key Growth Driver
Bajaj Finance continued to be a primary engine of growth for the group. Goldman Sachs elevated its AUM growth expectation for Bajaj Finance for FY27 to between 26-27%, while maintaining its medium-term growth outlook in the 20-25% range. Management anticipates an improvement in the operating expenses-to-net interest income ratio by 25-40 basis points in FY27. However, the brokerage foresees a slightly higher net interest margin (NIM) headwind than the company's earlier guidance of 10-15 basis points of compression.
Bajaj Life: Room for Expansion
Bajaj Life demonstrated robust performance, recording a 40% year-on-year growth in the value of new business (VNB). Its 12-month new business margin stood at 20.8%. Goldman Sachs highlighted that this segment still possesses considerable room for further expansion, suggesting future growth potential.
Bajaj General: Underwriting Challenges
Conversely, Bajaj General proved to be a drag on the group's overall performance. While gross written premium increased by 10% year-on-year to Rs 70.6 billion, and by 21% to Rs 56.4 billion when excluding tender-driven crop and government health business, challenges persisted. This growth was primarily supported by health and motor insurance. However, the claim ratio for Bajaj General rose to 83.7% from 75.8%, and the combined ratio increased to 104.5% from 102.3%, indicating deteriorating underwriting profitability.