May 22, 2008 - Bajaj Finservices and Investments’ consolidated revenues stood at Rs 12,225 crore.

Sanjiv Bajaj, MD, Bajaj Finserv & Investments said that there were no plans of mergeing Bajaj Auto Finance with the company. He also said the life insurance business continues to be the second largest in the private sector with a market share in excess of 7%, which has grown from 5.7% last year. "The business continues to grow in access of 50%, at more than twice the average growth rate for the industry."

According to Bajaj, non-performing assets, or NPAs, are in the range of 3.5% on an overall basis. "We would like these to see it below 2-2.5%, which is what we have priced in our products."

Excerpts from CNBC-TV18’s exclusive interview with Sanjiv Bajaj:

Q: Could you walk us through the topline and the bottomline performance of the company?

A: Bajaj Finserve’s consolidated revenues stand at Rs 12,225 crore with Rs 33 crore loss on the bottomline. Gross revenue was about Rs 100 crore while PAT stood at Rs 44 crore. For the live company, our gross return premiums were about Rs 9,700 crore with a loss of about Rs 210 crore. For the general insurance company, the gross return premiums were Rs 2,580 crore, with a PAT of Rs 106 crore. For the consumer finance company, Bajaj Auto Finance, the total dispersals were about Rs 3,000 crore, gross income was Rs 500 crore, and PAT at Rs 20 crore.

Q: Could you break up that performance on the life insurance business because there was a loss this time around? Going forward, what’s the forecast and when can we see the company see some amount of profit coming in at the bottomline level?

A: The life insurance business continues to be the second largest in the private sector. We have a market share in excess of 7%, which has grown from 5.7% last year. The business continues to grow in access of 50%, at more than twice the average growth rate for the industry. In the life insurance business, everytime you write a policy, you need to set aside some funds for a later pay out.

Most estimates are that when renewal premiums reach about 40% of the total premium, that’s when the business starts generating a profit. However, in this case the loss that is generated is because of growth, so it is not something that disturbs us. On the other hand, it points to very healthy growth for the industry. Now how long would it take to breakeven? A large decision over here would depend on when the industry starts maturing and slowing down. Our guess is that this may happen maybe three years down the line, but we have to again wait and watch.

Q: How much of topline growth has come in from single premium policies and how much of it has come in from first year regular premium policies?

A: Single premium policy growth is negligible, it is less than 10% of the total business. Most of it comes from regular policies and a large part of it comes from unit-linked policies. Coming to the general insurance business, this has been the first year after de-tariffing was announced in the industry. We saw a large amount of competition and discounting in the industry.

Our focus is to build the business and sell more policies on the retail and motor side, which has helped us keep growth growing. We are growing twice the industrial growth at about 35%. We continue to be number two in the private sector. Wth the focus being on retail and motor, we have not only grown on topline but have also maintained a healthy bottomline. That’s why if you see, we have among the lowest loss in combined ratios in the industry. We have declared a profit over there and we have a ROE in excess of 20%. It is the highest among our competitors, so here again the focus has been to balance solid growth but with a focus on bottomline.

Q: Bajaj Auto Finance’s quarterly numbers looked a bit disappointing. What went wrong in Q4 because the numbers in net profit stand at Rs 4.6 crore? Were there any extra ordinaries last quarter around that was not adjusted for this time? What was the forecast on that business?

A: What we see in Bajaj Auto Finance is a business which started off basically to finance Bajaj products and did one or two products, like consumer durables and personal computers. It has now been ramped up over the last 6-8 months, to start a number of new business lines like cross selling of personal loans, which we have already started and loans against shares, which was also started. In addition, we are shortly starting a small personal loan business. Later in the year, we hope to start a loan against property business.

So, the lower bottom-line is a consequence of higher bad losses on the past business. This is a phenomenon which has come out due to intense competition in the industry over the last two-years. But we have seen that settling down in the last couple of quarters.

 Unfortunately, NPAs and higher losses would flow for the next four quarters.  However, the lower income is also the result of additional expenses that have gone in setting up the new business lines. Any of these new business lines, whether it is small and personal business loans, loan against property or loan against shares requires upfront investment in manpower, technology and the organization. It typically takes 3-4 quarters before it breaks even. So, it is partly the good and bad.

Q: What are the current NPA levels with Bajaj Auto Finance? What is the plan to go about writing them off in the next few quarters?

A: The writing-off happens as per RBI policy. We will follow that continuously. As far as the NPA numbers are concerned, we are currently in the range of 3.5% on an overall basis. We would like these to be below 2-2.5%, which is what we have priced in our products. The gap of 1-1.5% is what you see hitting us on the bottom-line.

Q: Is there any plan of merging Bajaj Auto Finance with Bajaj Finserv?

 A: There are no such plans. Bajaj Auto Finance continues to be a public listed company. Of course, it gets full support from Finserv and would continue to do so.

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