Bajaj Life 2.0 completed: NBM rose from 11.1% to 24.5% over four quarters.

On how would you look to mitigate this volume impact?

Some actions we have already taken, quite successfully. A lot of this has been in terms of product structures and product mixes, and that is something we shall keep working on for the next 2 quarters. We are also in discussion with distribution on how to take this burden of GST. The tailwinds are sitting, and customers are seeing prices are down. So we are working with distribution and the sector together on how we can share this ITC burden with our distributors, our vendors, and how we can ourselves bury it down. We expect another 2 quarters for settling this entire process and taking all measures. By the end of that, we should be firmly placed.

From the full year point of view, will we have this delta of 500 to 700 basis points net of earnings, not factoring the GST negative impact? Or if I take an annualized impact of 450 basis points on the margin, is it fair to say that we will end up at a nineteen-teen margin for the full year?

We started this journey in second half of last year and March was the first full quarter that this entire change of Bajaj Life 2.0 became visible. Now March quarter was 4% margin expansion. June was 4.2%. This quarter, depending on whether you look gross or net of GST, we are upwards of 5.5%. Having run that for 3 quarters, it does give us confidence that the journey on margin expansion is on track. I would not want to hazard a guess whether it will be 4%, 6% or 7% margin expansion. But we are looking at significant consistent margin expansion. And absolute VNB rupee value is also growing. Probably 2 quarters we will have this noise or impact of GST. It's a transient impact. We do believe that over the next 2 quarters, we should be able to mitigate most of it. Had GST not been there, our confidence level in terms of margins would have definitely happened and we could have seen a margin expansion in the range of 4% to 6%.

On Bajaj Life growth - you will enter into a favorable base now in second half. Can we expect growth to come back in teens for you in second half or the disruptions with respect to GST, renegotiating commissions will have its bearing and growth for the full year can be still pretty muted?

The studied strategy that we had on a flattish 4 quarters is over, and that ended September,25. And here on, you should see a trajectory on growth. I would, at this point, not hazard a guess that it would be above the industry, but I wouldn't be surprised if it is. This is supported by the fact that the GST impact in terms of the tailwind that it's giving, will also be a significant part. We have already seen growth coming in the proprietary sales channel and the bancassurance side. Agency, some legs are still not steady, but bulk is under control. And we expect more will be visible in this coming quarter. Base effect notwithstanding, it will still be a favorably good quarter in terms of the top line.

On Bajaj General - in the Motor business, there seems to be a significant divergence between OD growth and TP growth. Will this divergence continue? And given the TP growth is very strong with low-price hike, is the loss ratio of around 59% in TP really sustainable? On Group Health PA and Retail Health growth being muted in first half - with 1/n accounting settling in second half, can we expect growth to grow back to nineteens to 20s in 2H?

Our philosophy is to maintain our market share in all lines of businesses and pick up good risk and serve the customer very well. On the TP question, if you look at our TP market share it had become lower than what our OD market share was. So we are trying to get that to where it should be. On the price hike of TP, for quite many years it did not happen, which means that our belief is that it should happen very soon. How soon - we can't tell because the government decides that. But because that has been overdue for quite some time, it should happen soon. On Group Health and PA - if the market does not give an opportunity to pick up risk at our price, which we feel is right, then we don't do that. When we see that opportunity, we do that. So whether in the next half, we will pick it up or not pick it up will all depend on the market and the pricing that we are comfortable with.

On protection - in the first half, growth is almost 70% YoY. Some sense on what is driving it. Do you think it is initial GST reduction and would come off after some time? Or is there something more to it?

In terms of growth, year-on-year is a difficult one because the base has already gone up. I think it's more to do with every channel basically picking it up significantly. On the GST impact, if any, the whole sector will still get the benefit of that for the future. We have been working on our underwriting analytics, profiling of customers, pre-profiling, democratizing it more in business channels, and I do see some headroom even more available there. The way we work our term strategy, like any other strategy is ground-up, segmented and not just one fit all. Our processes with AI at the back end and digitization has worked out quite well.

Closing thoughts on Bajaj Life trajectory.

When you look at the Life business, it is very long-term. If you look at the history of Bajaj Life over the last 7 to 8 years when we started the transformation, in 2018 without any external regulatory change or anything, we took a call to reduce ULIP from 72% by taking a big jump on to the traditional business. It did result in 1 year of lower growth because ticket sizes for traditional business were much lower. But the team executed very well. Last 3 years, we have seen several headwinds - first the tax on ULIP, then tax on traditional, the surrender charges and now the GST. Each of these really requires the company to review where it stands. We have started BALIC 2.0 with a very clear intention that we want to focus on consolidating the growth that we achieved in BALIC 1.0 with a greater focus on profitability. At least the results so far this year indicate that Bajaj Life is on the right track. The number of customers is growing. The percentage of customers who are going to be profitable and total mix are growing. We have cut out businesses which we believe will not give us a profit. There are other headwinds - for example, the yields coming off has taken a bit of a hit on the Non par Guaranteed business. Group protection is another area showing strong growth of 23%. Over the past two years, performance was volatile and patchy due to its dependence on bank and NBFC lending. However, it has now started picking up steadily. Our smaller banks, which we tied over the last few years are growing significantly well, which is also adding to margins.

On listing of Life Insurance and General Insurance business - any plans to list these companies separately, given that in the past there is regulatory push to list larger insurance companies. And in the last deal, your promoter group has taken a stake in these companies. Any plans to simplify the structure or list these companies in the medium term?

At the moment, our focus is on completing the acquisition. While we have changed the brand and effectively are in control now, the transaction is not complete yet. It will get done over the next few months, at least a substantial portion will get concluded. That is the first step. We are also with a new brand in place over the next 1 year. We have to be very watchful in both companies, in terms of retaining business and ensuring that we continue to grow and establish the Bajaj brand. After that we will review. I don't think in the next 2, 3 years we are seeing anything. We have other developments in the industry - IndAS coming up, RBC coming up, and IRDAI is making progress. For the next 2 to 3 years they will all play out. They have a big impact on the way numbers are reported, how the profitability is measured. We do have excess capital in both companies. In the case of Life we are consuming it for the right products and the right growth. In the case of non-life, we are generating capital. And we will review that at appropriate time by the Boards. But for the next 2 to 3 years because of all these external developments, we also have the insurance bill which may come up any time, which has the changes in the Insurance Act with 100% FDI, potentially composite licenses, ecosystems, many things. So all these have an impact on how you look at long-term strategy. Therefore, we will wait for all these to play out before we take a view.

Follow-up on loss ratio mitigation actions.

Let me explain the blip. In the beginning of the year, the OEMs increase their charges for our labor, spare parts. This happens in most of the years - you will see this blip initially happening. And then the company keeps on taking corrective actions and then it gets there. It will be a phenomenon that you will see in our business because our claims depend a lot on where it's getting service. If the OEMs increase their labor charges, it increases the spare part price, the claim ratio would move up immediately. If the hospital increases the charges, that would move up. But then how does the company react to it, and is able to bring it down while ensuring customer service is at the highest order is what the game is. Over decades we do this. So this is not a cause of worry.

How do you see the GST impact on Motor business loss ratios as well as in the Retail Health Insurance business?

GST has 2 components. One was input tax rate for distribution. Second was because of reduction of GST, you saw increase of car sales happen, where obviously the Motor business goes up. Also due to the Retail Health business, that also moves up. But at the same time hospitals and OEMs also have other benefits in spare parts and all. Now if they pass it on to customers, as was the expectation by the government, then that would also bring it down. But there, we have to see proof in terms of how much they really pass on to customers. So you will see increase in these lines of businesses, you would see the impact in losses, if they pass on the benefits they have in terms of spare part cost or in terms of medical equipment cost.

On health - we have almost infused more than INR 1,200 crores on the health side. We are seeing almost INR 30 crores quarterly run roughly losses. When do we see that part turning around? What would be our milestone benchmarks over the next 3 years for that business, in terms of profitability or something we can monitor quantitatively and qualitatively?

The way we look at the health businesses, our objective is to build a differentiated platform which takes care of the requirements of all stakeholders. The ecosystem has quite a few stakeholders - the consumer, insurers, providers or hospitals or doctors, which have slightly conflicting priorities. There is value creation possible - globally it's seen and hence it can be done. But our priority at this point of time is to create digital interface and put health data to use for users as well as payers or insurers and providers. Two things we are focused on as far as profit trajectory is concerned. One, how do we launch more services which balances requirements of all stakeholders? Second, how do we drive volume which will eventually lead to operating leverage. We are seeing operating leverage play out quarter-on-quarter, but it needs to steepen up - that will happen with more and more new services getting launched.

On BALIC itself - we are in the first year of a very significant leg up in our NBMs from closer to 10%, to 12% kind of range to now even excluding GST 17%, 18%, 19% kind of ranges. We had these targets of reaching around 20%. Will we stay in this band for some more time, consolidate and grow the scale and profitability both? Or do we think we will be looking at the further next journey from here on over the next 3 years, more moving in line with where the Tier 1 margins for players are?

We will take it a step at a time. There has been a leg up and I am happy that all of you are acknowledging the significant change. I would not jump ahead of my time and would not make too many forward-looking statements yet. We take it step by step. The entire sector is looking at the GST impact. We are working on it. The sector first has to gobble up that and then maybe talk of times beyond that. There is going to be another quarter when we will meet and another quarter after that as well. We will then be in a better position to respond to this.