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We now value life insurance businesses on an appraisal value basis vs our previous methodology
of giving a multiple to the new business profits. This prompts us to revise our SOTP. The largest
increases in our SOTP in our coverage encompass ABNL, ICICI Bank, SBI and HDFC Ltd, in that
order.
ICICI Prudential Life (not-listed), a subsidiary of ICICI Bank
We believe ICICI Prudential has achieved a sound balance between persistency, expense control
and asset growth, while maintaining its dominant position in the sector. We believe timely
consolidation puts it in a position from which it can invest in growth while other companies focus
on getting their business models right. We revise our ICICI Prudential valuation to Rs178bn
(Rs114 per share, 1.9x FY12F EV and 5.8x BV FY12F), vs Rs102bn (Rs65 per share) previously.
This drives our target price for ICICI Bank to Rs1,310 (Rs1,261 previously). We maintain our Buy
rating on ICICI Bank.
SBI Life (not-listed), a subsidiary of SBI
SBI Life benefits from its parent’s strong branding and distribution capabilities, which give it a
competitive and sustainable edge over its Indian peers, with the lowest operating ratios among
private insurers in our coverage universe. Management has set an aggressive agenda of
expanding during FY12 to support future growth. We increase our valuation of SBI Life to
Rs131bn (from Rs65bn) at 2.1x FY12F EV, 6.6x FY12F BV, ie, from Rs76 per share to Rs154 per
share of SBI. As a result, our target price for SBI increases to Rs 2,852 per share from Rs2,774.
We maintain our Buy rating.
HDFC Life (not-listed), a subsidiary of HDFC Ltd
We increase our valuation of HDFC Life from Rs95bn earlier to Rs103bn (2.2x FY12F EV, 11.8x
book) (or from Rs47 per HDFC Ltd share to Rs51). As a result, our HDFC Ltd target price rises
from Rs759 to Rs763 . Being on a higher cost base than its peers, HDFC Life has a higher
operating cost to GWP ratio relative to the likes of ICICI Prudential, SBI Life and LIC. Thus, we
expect margins to be sensitive to improving productivity and growth.
Birla Sun Life Insurance (not-listed), a subsidiary of ABNL
With no strong bancassurance support, we expect BSLI to grow more slowly than bank-backed
insurers. However, it could retain similar or even higher margins as it is growing in the highmargin
non-par segment. We revise valuations of BSLI to Rs70bn (1.5x FY12F EV, 5.3x FY12F
BV) (Rs47bn earlier) ) (or Rs 439 now from Rs 297 earlier) and mark to market listed investments
which raise our TP for ABNL to Rs1,387 from Rs1,100. A key risk is that any pricing restrictions
imposed by IRDA on traditional policies that would adversely impact the company’s business
model. If the regulator allows multiple tie-ups for banks, we think this could provide a further fillip
to its new business growth
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We now value life insurance businesses on an appraisal value basis vs our previous methodology
of giving a multiple to the new business profits. This prompts us to revise our SOTP. The largest
increases in our SOTP in our coverage encompass ABNL, ICICI Bank, SBI and HDFC Ltd, in that
order.
ICICI Prudential Life (not-listed), a subsidiary of ICICI Bank
We believe ICICI Prudential has achieved a sound balance between persistency, expense control
and asset growth, while maintaining its dominant position in the sector. We believe timely
consolidation puts it in a position from which it can invest in growth while other companies focus
on getting their business models right. We revise our ICICI Prudential valuation to Rs178bn
(Rs114 per share, 1.9x FY12F EV and 5.8x BV FY12F), vs Rs102bn (Rs65 per share) previously.
This drives our target price for ICICI Bank to Rs1,310 (Rs1,261 previously). We maintain our Buy
rating on ICICI Bank.
SBI Life (not-listed), a subsidiary of SBI
SBI Life benefits from its parent’s strong branding and distribution capabilities, which give it a
competitive and sustainable edge over its Indian peers, with the lowest operating ratios among
private insurers in our coverage universe. Management has set an aggressive agenda of
expanding during FY12 to support future growth. We increase our valuation of SBI Life to
Rs131bn (from Rs65bn) at 2.1x FY12F EV, 6.6x FY12F BV, ie, from Rs76 per share to Rs154 per
share of SBI. As a result, our target price for SBI increases to Rs 2,852 per share from Rs2,774.
We maintain our Buy rating.
HDFC Life (not-listed), a subsidiary of HDFC Ltd
We increase our valuation of HDFC Life from Rs95bn earlier to Rs103bn (2.2x FY12F EV, 11.8x
book) (or from Rs47 per HDFC Ltd share to Rs51). As a result, our HDFC Ltd target price rises
from Rs759 to Rs763 . Being on a higher cost base than its peers, HDFC Life has a higher
operating cost to GWP ratio relative to the likes of ICICI Prudential, SBI Life and LIC. Thus, we
expect margins to be sensitive to improving productivity and growth.
Birla Sun Life Insurance (not-listed), a subsidiary of ABNL
With no strong bancassurance support, we expect BSLI to grow more slowly than bank-backed
insurers. However, it could retain similar or even higher margins as it is growing in the highmargin
non-par segment. We revise valuations of BSLI to Rs70bn (1.5x FY12F EV, 5.3x FY12F
BV) (Rs47bn earlier) ) (or Rs 439 now from Rs 297 earlier) and mark to market listed investments
which raise our TP for ABNL to Rs1,387 from Rs1,100. A key risk is that any pricing restrictions
imposed by IRDA on traditional policies that would adversely impact the company’s business
model. If the regulator allows multiple tie-ups for banks, we think this could provide a further fillip
to its new business growth
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