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Sunday, June 21, 2009

Bajaj Finserv Ltd:-Future growth prospects and outlook

Scripscan:Bajaj Finserv Ltd
Traded in:Nse-bse

Story:Financial services provider Bajaj FinServ has presence in general insurance, life insurance and consumer finance business. The company's presence in the insurance business with a 74% stake each in Bajaj Allianz Life Insurance and Bajaj General Insurance. The insurance industry was confined to the public sector until 2000 in India. When the sector was open for private players, a deluge of new entrants entered the industry and insurance was at the forefront of the growth story in financial services industry. There are 18 private players in the life insurance space and 12 private players in the general insurance industry so that there is a significant competition in the market with proliferation of private players. On the top of it, the public sector players LIC, Oriental, New India and National Assurance have made significant base in the industry with several decades experience.Bajaj FinServ's general insurance business is running in profits, however, life insurance business is yet to break even. This is due to accounting regulations, which require expense recognition while maintaining reserve for estimated future liability. In simpler words, if an insured pays a premium of just Rs 10,000 on a sum assured of Rs 10,00,000, from the company's point of view, the income will just be the premium received, but the expense will be calculated on the sum assured of Rs 10,00,000. Hence, expenses are far higher than income and the company has to operate at losses, Due to this, it cannot be said that when the life insurance business of the company will break even. This is expected only when the renewal premiums are much more than new business premium.All kinds of finance business are impacted by the turmoil in financial and capital markets. To this extent, even Bajaj FinServ would be impacted in the short-run. However, the penetration of insurance products in the country is very low providing huge opportunities to companies like Bajaj FinServ. Moreover, the company has already built a vast distribution network and it seems that the company will emerge as one of the strongest players in the insurance space in a few years.A great buy at dips.

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