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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• We think the worst is over for Indian life insurers – the sales contraction
is largely done, margin pressures have been contained and regulatory
pressures appear to be easing. We marginally raise our valuations of life
insurers on lower regulatory risk and improved long-term growth
prospects. The purest play is Reliance Capital, which we initiate with
OW and Rs740 price target, implying a 27% return from current levels.
• Sales pressures largely over. We expect FY12 sales to be flat yoy, after
a ~15% contraction in FY11. It’ll be a year of two halves, though,
because of the skewed base effect. We expect the monthly run-rate to be
negative in Apr-Aug 2011, before turning positive in September. The
share of traditional policies is expected to rise, though ULIPs should
remain the dominant product for private sector players.
• Margins to stabilize at 12-14%. We expect NBAP margins to stabilize
at 12-14%, once the higher tax rate kicks in from FY13. We think EV
pressures will be largely contained with positive variance from equity
performance. Stat earnings should start to look very healthy, with slower
growth reducing new business strain. We expect profitability to sustain
and capital consumption to reduce dramatically.
• Regulatory risk largely over. The process of tightening charges and
market practices is largely done. The higher ceiling for foreign investors
could come through in 2011, along with the IRDA’s IPO guidelines. The
Nippon Life—Reliance deal does indicate some visibility returning to
growth and profitability.
• Raising valuations, OW on RCAPT. We think the regulation changes
of 2010 have increased barriers to entry and large incumbents will
become more deeply entrenched. Bank-promoted players will benefit
more as they will ride on their “captive” distributions. We retain our
cautious valuations, except for HDFC Life which is rapidly gaining
market share. We initiate on RCAPT with OW, and recommend HDFC
as the other play on the sector.
Raising valuations, OW on RCAPT.
We think the regulation changes of 2010 have increased barriers to entry and large
incumbents will become more deeply entrenched. Bank-promoted players will
benefit more as they will ride on their “captive” distributions. We retain our cautious
valuations, except for HDFC Life which is rapidly gaining market share. We initiate
on RCAPT with OW, and recommend HDFC as the other play on the sector.
• We think the regulation changes of 2010 have increased barriers to entry and
large incumbents will become more deeply entrenched. The cost of building out a
new distribution network is now prohibitive, and the low front-end charges will
make it difficult to attract new agents to the business. Moreover, low profitability
will make capital raising difficult.
• Among the incumbents, we think bank-promoted players benefit more. The cut in
distribution fees affects banks’ propensity to sell less than it does agents – given
that the customer acquisition is not a factor for the former. In fact, banks and
lifecos are working more closely together - We have recently noticed promotions
of HDFC Life products on the HDFC Bank website.
• We raise our forecasts for growth and but stay cautious on margins. Overall, we
estimate the market share of the top private players will continue to rise, with
market growth at ~15% for FY13-18. This is after factoring in flat volumes in
FY12.
• We are incrementally very positive on HDFC Life. We believe the new
management has addressed critical issues - branding, the relationship with HDFC
Bank and the product suite - and we are raising our expectations of market share
significantly. Our change in firm value is the largest for HDFC Life (27% higher)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• We think the worst is over for Indian life insurers – the sales contraction
is largely done, margin pressures have been contained and regulatory
pressures appear to be easing. We marginally raise our valuations of life
insurers on lower regulatory risk and improved long-term growth
prospects. The purest play is Reliance Capital, which we initiate with
OW and Rs740 price target, implying a 27% return from current levels.
• Sales pressures largely over. We expect FY12 sales to be flat yoy, after
a ~15% contraction in FY11. It’ll be a year of two halves, though,
because of the skewed base effect. We expect the monthly run-rate to be
negative in Apr-Aug 2011, before turning positive in September. The
share of traditional policies is expected to rise, though ULIPs should
remain the dominant product for private sector players.
• Margins to stabilize at 12-14%. We expect NBAP margins to stabilize
at 12-14%, once the higher tax rate kicks in from FY13. We think EV
pressures will be largely contained with positive variance from equity
performance. Stat earnings should start to look very healthy, with slower
growth reducing new business strain. We expect profitability to sustain
and capital consumption to reduce dramatically.
• Regulatory risk largely over. The process of tightening charges and
market practices is largely done. The higher ceiling for foreign investors
could come through in 2011, along with the IRDA’s IPO guidelines. The
Nippon Life—Reliance deal does indicate some visibility returning to
growth and profitability.
• Raising valuations, OW on RCAPT. We think the regulation changes
of 2010 have increased barriers to entry and large incumbents will
become more deeply entrenched. Bank-promoted players will benefit
more as they will ride on their “captive” distributions. We retain our
cautious valuations, except for HDFC Life which is rapidly gaining
market share. We initiate on RCAPT with OW, and recommend HDFC
as the other play on the sector.
Raising valuations, OW on RCAPT.
We think the regulation changes of 2010 have increased barriers to entry and large
incumbents will become more deeply entrenched. Bank-promoted players will
benefit more as they will ride on their “captive” distributions. We retain our cautious
valuations, except for HDFC Life which is rapidly gaining market share. We initiate
on RCAPT with OW, and recommend HDFC as the other play on the sector.
• We think the regulation changes of 2010 have increased barriers to entry and
large incumbents will become more deeply entrenched. The cost of building out a
new distribution network is now prohibitive, and the low front-end charges will
make it difficult to attract new agents to the business. Moreover, low profitability
will make capital raising difficult.
• Among the incumbents, we think bank-promoted players benefit more. The cut in
distribution fees affects banks’ propensity to sell less than it does agents – given
that the customer acquisition is not a factor for the former. In fact, banks and
lifecos are working more closely together - We have recently noticed promotions
of HDFC Life products on the HDFC Bank website.
• We raise our forecasts for growth and but stay cautious on margins. Overall, we
estimate the market share of the top private players will continue to rise, with
market growth at ~15% for FY13-18. This is after factoring in flat volumes in
FY12.
• We are incrementally very positive on HDFC Life. We believe the new
management has addressed critical issues - branding, the relationship with HDFC
Bank and the product suite - and we are raising our expectations of market share
significantly. Our change in firm value is the largest for HDFC Life (27% higher)
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