80% of Bajaj Group’s valuation comes from financial services

Mumbai: Rahul Bajaj’s business legacy is made up of group companies with a market capitalization of over Rs 8.4 lakh crore, with about 80% of the group’s valuation coming from the financial services twins – Bajaj Finance and Bajaj Finserv.
Almost every industrial group in the country has an in-house financial services company. All the more so for companies in the automotive industry considering that they have a captive activity to finance. However, across all business groups, financial services are generally complementary to manufacturing.
Much of the valuation of financial services activity comes from lending activity. What makes Bajaj Finserv a superstar among lenders is its success in small loans by building a personal loan portfolio larger than most banks. The company’s use of technology and its efficient underwriting process allowed it to lend instantly without default.
What enabled Bajaj’s financial services business to take off was the decision to split the companies in 2008. The Bajaj Group is a rare case where a split of the companies between family members led to an increase in wealth. In 2006, when Rahul Bajaj started the process of creating value at Bajaj Auto, one of the results was the split of the financial services business from the two-wheeler business and the separation of responsibilities between his two sons Sanjiv and Rajiv.
The split saw the business group split between two brothers, each with a market capitalization of around Rs 8,000 crore. It was good that at the time of the split, Bajaj Finance was not even among the top five finance companies. Yet what gave the company the valuation was ownership of a stake in Bajaj Allianz Life and Bajaj Allianz General Insurance.
Rahul Bajaj’s venture into insurance has an interesting story. Bajaj entered the insurance business in 2001 after being approached by the German insurer who had severed a partnership with Alpic Finance and was looking for a big name most of whom were already taken. Allianz was so keen on a partnership that it agreed to fund much of the investment in the insurance business despite a 26% minority stake. The deal was that Bajaj would allow Allianz to take a majority stake at a pre-determined price in 2016 provided the rules allow it. However, the restriction continued even after 2016 and Bajaj remained the majority shareholder. Today, both insurance companies are among the most valuable in the country.

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