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Muted insurance volumes, delay in Nippon Life deal and weak investor
sentiment has led to ~20% underperformance over the last 20 days. With
current market cap of Rs100bn at less than the insurance valuation from
the Nippon life deal, concerns are more than factored in. Consummation
of Nippon Life, removal of assured returns on pensions and improving
insurance volumes in 2H would be strong catalysts.
Nippon Life deal a big positive catalyst: Management has indicated
that the Nippon life deal should be concluded in the next 2-3 months.
This would not only validate the insurance business valuation (JPMe
insurance valuations at ~40% discount to deal valuation of Rs110bn) but
also address balance sheet concerns on leverage/liquidity as it would
provide ~Rs27bn of cash and increase net worth by >20%.
Muted 1Q12, some positive though: 1Q12 performance was muted
with market share loss in life insurance, margin pressure for the lending
business and flat AUMs in the AMC business but there were some
medium term positives like (1) cost efficiency improvement in the life
insurance business with 37% y/y contraction in opex and (2) Continuing
strong asset quality in the lending business with <50bps of credit costs.
2H could be relatively better: We believe operationally 2H could be
relatively better with (1) growth in insurance volumes expected to pick
up given favorable base in 2H and increase in volumes from pension
business and (2) margin improvement in the lending business given
~150bps hike taken recently across product categories. Also, capital
market buoyancy could provide upside in AMC and other subsidiaries.
Maintain Overweight: Our revised Mar-12 PT of Rs650/share (Rs740
earlier) is based on conservative valuations and reflects fundamental
value of the various businesses though discounts may persist in the near
term due to weak sentiment. We believe improving fundamentals and
consummation of the Nippon life deal would address investor concerns
and see current depressed valuations as an attractive entry opportunity.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Muted insurance volumes, delay in Nippon Life deal and weak investor
sentiment has led to ~20% underperformance over the last 20 days. With
current market cap of Rs100bn at less than the insurance valuation from
the Nippon life deal, concerns are more than factored in. Consummation
of Nippon Life, removal of assured returns on pensions and improving
insurance volumes in 2H would be strong catalysts.
Nippon Life deal a big positive catalyst: Management has indicated
that the Nippon life deal should be concluded in the next 2-3 months.
This would not only validate the insurance business valuation (JPMe
insurance valuations at ~40% discount to deal valuation of Rs110bn) but
also address balance sheet concerns on leverage/liquidity as it would
provide ~Rs27bn of cash and increase net worth by >20%.
Muted 1Q12, some positive though: 1Q12 performance was muted
with market share loss in life insurance, margin pressure for the lending
business and flat AUMs in the AMC business but there were some
medium term positives like (1) cost efficiency improvement in the life
insurance business with 37% y/y contraction in opex and (2) Continuing
strong asset quality in the lending business with <50bps of credit costs.
2H could be relatively better: We believe operationally 2H could be
relatively better with (1) growth in insurance volumes expected to pick
up given favorable base in 2H and increase in volumes from pension
business and (2) margin improvement in the lending business given
~150bps hike taken recently across product categories. Also, capital
market buoyancy could provide upside in AMC and other subsidiaries.
Maintain Overweight: Our revised Mar-12 PT of Rs650/share (Rs740
earlier) is based on conservative valuations and reflects fundamental
value of the various businesses though discounts may persist in the near
term due to weak sentiment. We believe improving fundamentals and
consummation of the Nippon life deal would address investor concerns
and see current depressed valuations as an attractive entry opportunity.
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