In a breather to non-life insurance companies, Covid-related health insurance claims have dropped with the ebbing of the second wave of the pandemic.
However, there has been a rise in non-Covid-related health claims and their average ticket size has risen significantly, said Bhargav Dasgupta, Managing Director and CEO, ICICI Lombard General Insurance. If this trend continues, it could impact health insurance premium.
Average ticket size
According to Dasgupta, the insurer has seen a 20 per cent increase in the average ticket size of these claims over two years, from 2019-20 to now, which is about 10 per cent compounded growth.
“As Covid claims have come down, the frequency of non-Covid health claims has gone up. Some of the other infectious diseases have spiked this year such as malaria, chikungunya and dengue. Also, there was some amount of backlog of the elective surgeries that have now caught up in this quarter,” he said in an interview with BusinessLine, adding that the ticket size of claims has gone up for similar ailments.
“We’ll have to see if it’s a temporary increase or permanent in nature. This could perhaps be because of additional RT-PCR tests that hospitals have do or some more procedures that they’re following, but hopefully that will stabilise,” he said, adding that if healthcare costs continue to increase at the level they are going up it could start impacting the premium for customers.
Dasgupta said that the insurer increased pricing on its corporate health portfolio, but is on the wait-and-watch mode on retail health insurance.
“On the retail side, we have to go back to the IRDAI and seek price increase. As of now, we’ve not done that. This is just one quarter data; we want to wait for this fiscal and see the data and then decide. We are not using the Covid spike to ask for a price increase because that would not be fair on customers,” he stressed.
Between April and September 2021, the insurer received 72,059 Covid-related health claims and 2,38,409 claims for non-Covid cases.
Dasgupta, however, continues to be confident about growth prospects, and said there is a structural increase in the demand for health insurance.
The Fed interest rate decision, domestic macroeconomic data announcements and quarterly earnings will be the major sentiment drivers for the equity market in a holiday-shortened week ahead, analysts said. Investors will also take cues from the monthly auto sales numbers to be announced on Monday.
Equity markets will remain closed on Thursday for Diwali Laxmi Pujan and on Friday for Diwali Balipratipada. “Due to the festival of Diwali, markets will have a truncated three-day trading session this week.
“Key events to watch out for this week will be India’s PMI data for October and US Fed meeting which will provide some direction to the market,” Siddhartha Khemka, head (retail research) at Motilal Oswal Financial Services Ltd, said. Selling by foreign funds, weak global markets and mixed earnings weighed on market sentiments last week.
“This is going to be a truncated week on account of Diwali where the market is heading this festival season with a mood of profit-booking. The week will start with auto sales numbers for October where expectations are low, while the market will also gauge the consumers’ sentiments on Dhanteras and Diwali,” Santosh Meena, head (research) at Swastika Investmart, said.
Important earnings are lined up this week including names like HDFC, IRCTC, Tata Motors, Bharti Airtel, HPCL, Sun Pharma, Eicher Motors and SBI, he added. Yesha Shah, head (equity research) at Samco Securities, said, “Although the trading week ahead will be shorter than usual, it can undoubtedly be eventful. The news flow and market sentiment may be largely dominated by the upcoming FOMC (Federal Open Market Committee) meeting.”
Shah added that Indian automakers will report their monthly sales figures. “Despite the advent of the festive season, shortages of semiconductors, rising freight and commodity prices may continue to squeeze margins and weaken sales,” Shah added. Last week, the 30-share BSE benchmark tumbled 1,514.69 points or 2.49 per cent.
“Markets are expected to remain bearish in the short term due to profit-booking across various sectors and weak global cues. The Q2 result season is in progress with the market getting mixed responses from companies declaring their results. Along with the corporate earnings, the market has to deal with macro numbers,” Rahul Sharma, co-founder of Equity99, said.
Vinod Nair, head (research) at Geojit Financial Services, said India’s manufacturing and services PMI data to be released this week will be a key indicator in determining the economic progress for October. “Additionally, decisions of the Fed in its meeting this week will be a major factor that will drive global equities in the coming days,” he added. Also Read:
The company has deferred the purchase window for new orders by over a month from the original November 1 timeline. Says it wants to prioritise deliveries to existing customers and reduce waiting period between purchase orders and final delivery in future.
MUMBAI: The share of personal loans in bank credit has for the first time overtaken overall loans to the industry sector during the second quarter of the current financial year. This has happened with loans to industry as of end-September 2021 shrinking by Rs 66,239 crore over March 2021 levels, while loans to individuals grew Rs 73,011 crore during the period.
According to data released by the Reserve Bank of India, bank credit outstanding on the last Friday of September was Rs 109.5 lakh crore. Of this, the share of loans to industry dropped to 26% (Rs 28.3 lakh crore) from 27% a year earlier. Personal loans, which were a quarter of all bank loans in September 2020, increased to 27% (Rs 29.2 lakh crore) by end-September 2021.
The drop in bank credit to the industry segment was largely due to companies in core industries deleveraging. Loans to iron and steel industries dropped by Rs 39,249 crore and loans to chemicals (which includes fertilisers, drugs and petrochemicals) shrunk by Rs 10,146 crore in the six months ended September. The few sectors which saw growth in credit were roads, ports and power. However, even this was not enough to show positive credit growth in the infrastructure segment.
Overall credit outstanding to large industry shrunk by 5% in the first six months of the fiscal. This has pulled down industrial loan growth to 2.3% despite credit to small and medium businesses rising.
In the personal segment, banks added Rs 20,096 crore of home loans to their portfolio in the last six months. They also increased their auto loan and gold loan book by Rs 3,000 crore each. Other personal loans were up by Rs 45,000 crore. Overall loans outstanding in the personal loan segment grew by Rs 73,000 crore in the six months ended September 2021. This has expanded the personal loan portfolio to Rs 29.18 lakh crore.
The data appears to indicate that banks have wrested market share from finance companies in the credit market. Typically, NBFCs borrow from banks and debt markets and lend. Bank credit to NBFCs, which is the largest component in loans to services sector, shrunk by Rs 61,124 crore in the last six months. This has resulted in the share of credit to NBFCs dropping from 9% (Rs 9.4 lakh crore) on end March 2021 to 8% (Rs 8.8 lakh crore) as of end September 2021. This has resulted in outstanding bank credit to the services sector declining by 3% since March 2021.
According to bankers, the decline in bank credit to large companies could be attributed to their deleveraging coupled with shifting to the debt market where cheaper money is available through commercial paper. Some businesses are seeing better cash realisations and do not feel the need to borrow.
In the NBFC segment, the classification of a large borrower as a non-performing asset by banks could have added to the decline in the segment. The home loan portfolio displays more consistency and does not occasionally shrink like other segments because home loans are long term and fresh disbursements have a compounding impact on the size of the portfolio.
Customers of stressed Punjab & Maharashtra Co-Operative Bank (PMC Bank) will not get up to Rs 5 lakh insurance cover in the first lot as the multi-state co-operative bank is under the resolution process. Deposit Insurance and Credit Guarantee Corporation (DICGC) in the first lot will pay customers of 20 stressed banks except PMC Bank. For the first lot, the mandatory 90 days period concludes on November 30.
It is to be noted that RBI had in June given in-principle approval to a consortium of Centrum Financial Services and fintech startup BharatPe to acquire the stressed PMC Bank.
Clearing decks for the takeover, the RBI earlier this month gave licence for small finance bank to the consortium.
Recently, the DICGC said there may be a need to invoke the provisions of Section 18 A (7) (a) of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021,
As per the Section 18 A (7) (a) of the Act, if a stressed bank is under the resolution process, the period for disbursement of Rs 5 lakh can be further extended by 90 days.
“The Reserve Bank finds it expedient in the interest of finalising a scheme of amalgamation of the insured bank with other banking institution or a scheme of compromise or arrangement or of reconstruction in respect of such insured bank, and communicates to the Corporation accordingly, the date on which the Corporation shall become liable to pay every depositor of such insured bank may further be extended by a period not exceeding ninety days,” it said.
In September 2019, the RBI had superseded the board of PMC Bank and placed it under various regulatory restrictions after detection of certain financial irregularities, hiding and misreporting of loans given to real estate developer HDIL.
The Reserve Bank of India (RBI) had imposed restrictions on the withdrawal of deposits from these stressed banks. Of the 20 banks, 10 are from Maharashtra, five from Karnataka, and one each from Uttar Pradesh, Kerala, Rajasthan, Madhya Pradesh, and Punjab.
Last year, the government increased the insurance cover on deposits by five times to Rs 5 lakh. The enhanced deposit insurance cover of Rs 5 lakh came into effect from February 4, 2020.
Every bank used to pay 10 paise as an insurance premium per Rs 100 of deposit. It was raised to 12 paise per Rs 100 in 2020. It cannot be more than 15 paise at any point in time per Rs 100 deposit.
It is to be noted that the enhanced deposit insurance cover of Rs 5 lakh is effective from February 4, 2020. The increase was done after a gap of 27 years as it has been static since 1993.
MUMBAI: A month after the RBI’s fresh rules on mandates for recurring card payments kicked in, banks accounting for over 95% of credit cards in the market are compliant with the new system. Over 20 lakh e-mandates have been registered by cardholders with a host of merchants.
According to payment industry sources, the banks whose credit cards are eligible for new standing payment mandate include SBI, Axis Bank, HDFC Bank, Yes Bank, American Express, Bank of India, Bank of Baroda, ICICI Bank, HSBC, RBL Bank, IndusInd Bank and Kotak Mahindra Bank. Several banks have enabled the mandate for both debit cards as well as credit cards.
Automatic recurring payments also require the merchant to be on-boarded to the new e-mandate framework. The compliant businesses include most of the OTT (over-the-top) streaming platforms, private life & general insurance companies, global IT giants like Google, Facebook, Microsoft and McAfee, as well as some edtech companies.
Interestingly, Indian cardholders who have registered with overseas service providers, having payment gateways abroad, are not subject to the new rules. This is because the RBI has no jurisdiction to impose second-factor authentication in those markets. It is up to the customer to disable international transactions on their cards.
What has facilitated the fast on-boarding of merchants is IT solutions like SI Hub developed by BillDesk and Mandate HQ developed by Razorpay. However, some domestic banks like Canara Bank & Punjab National Bank and Standard Chartered Bank were until last week in the process of making the necessary system changes.
According to the sources, card-based recurring transactions are 2.5% in terms of the number of transactions and 1.5% in terms of the value of the total card payments done in the country. On average, approximately 75% of domestic recurring transactions are of values of up to Rs 5,000. The corresponding figure for cross-border recurring transactions is approximately 85%.
The net profit of private banks rose 26 per cent year on year in the July-September 2021 quarter and 21.9 per cent sequentially over March-June 2021 (Q1), as the pandemic ebbed and economic recovery has taken hold.
The 12 private lenders posted a collective net profit of Rs 21,965 crore during the second quarter.
Provisions and contingencies of the lenders that have declared results fell both 22 per cent year on year and 30.2 per cent quarter on quarter to Rs 12,805 crore. The provisions include those for one time restructuring of loans announced by the RBI in May.
Net interest income was up 10.8 per cent y-o-y and 2.5 per cent sequentially. Other income rose 15.7 per cent to Rs 22,638 crore.
Gross non-performing assets grew 1.1% to Rs 1.73 lakh crore y-o-y, but fell 3.5 per cent sequentially from about Rs 1.8 lakh crore in the June quarter.
Net NPAs rose by 27.5 per cent y-o-y to Rs 42,895 crore, but fell sequentially by 7.3 per cent from Rs 46,280 crore in June 2021.
ICICI Bank posted a higher-than-expected 29.6% on-year rise in net profit to Rs 5510 crore in July-September, which was highest in the bank’s history. As the bank maintained 17% growth in advances, and further improved on net interest income and margins, asset quality ratios provided additional support to the bottomline by keeping provision costs low.
Axis Bank reported an over 86% year-on-year rise in net profit to Rs 3130 crore for the September quarter, benefiting from an improvement in asset quality, which led to a fall in provisioning. The bank expects consumer and business confidence to continue to trend upward in Oct-Mar on the back of a rise in vaccination coverage and as the economy opens up, pent-up demand and spends materialise.
Federal Bank posted a higher than expected net profit of Rs 460 crore in the September quarter, led by a fall in overall provisions as the lender reported improvements in asset quality. The bank’s net profit rose 49.6 per cent on year, and 25.3 per cent on quarter. This was supported by a faster-than-industry credit growth that fuelled a rise in core ratios such as net interest income and net interest margins.
Yes Bank’s net profit jumped 74 per cent year-on-year in the September quarter to Rs 230 crore on the back of a sharp fall in provisioning. Going ahead, a sharp reduction in overdue loans and sustained momentum in loan recoveries and upgrades augurs well for the overall asset quality of the bank.
RBL Bank posted a 78.6 per cent on-year fall in net profit for the September quarter at Rs 30 crore due to higher provisions amid an increase in bad loans. For April-June, the private sector lender had reported a net loss of Rs 460 crore. Slippages, gross non-performing assets ratios, and provisions had peaked in the reporting quarter, and the lender was on track to see growth, the bank said.
Axis Asset Management Company, an arm of private sector lender Axis Bank, has raised around Rs 400 crore through first close of Axis Growth Avenues AIF-I, aiming to fund ideas with deep technology as their USP. The asset management company is aiming to raise a total of Rs 1,000 crore through the close-ended fund, including a greenshoe option of Rs 500 crore. It is confident of completing the entire fundraising in this quarter, based on response and commitments from investors.
The fund has achieved the first close with investments from family offices, high networth individuals (HNIs) and non-resident Indians (NRIs). The fund will be investing primarily in mid-to-late stage technology-enabled companies with scaleable business models and a favourable risk-return profile. The sector-agnostic fund will be investing in companies catering to latent demands with multiyear growth potential and differentiated business model.
Axis Growth Avenues AIF-I will be exploring both primary and secondary investment opportunities with the proposed portfolio size of eight to 10 companies, with deal size ranging from Rs 25 crore to Rs 100 crore each.
The AMC has a strong pipeline of investments and expects to start deploying funds from the AIF soon. “The strong response that we are receiving for the Axis Growth Avenues AIF-I, reflects the confidence investors and partners have in us, as well as the potential of this segment. It will be our endeavour to ensure we deploy this money in companies that offer exciting long term growth opportunities and are aligned with our investment philosophy,” said Chandresh Nigam, chief executive, Axis AMC.
Total fund term will be five years from its final closing and may be extended for two additional periods of one year each. The AIF is looking to capitalise on innovation and growth in the economy and to invest in companies that are benefiting from these trends. It will be primarily focused on investing in fintech, technology, ecommerce and edtech.
According to Motilal Oswal L&T’s order book grew 11% YoY to Rs 3.3 trillion, with the order book/revenue ratio at 3.2 times.
The international business formed 23% of order book. In terms of clientele, the central/state government formed 10%/33%, PSUs 42%, and the private sector 15% of the company’s total order book.
“L&T has indicated that the bid pipeline remains strong, with the overall pipeline for the remainder of the year standing at Rs 6.8 trillion (+12% YoY). The Infrastructure sector’s prospects stood at Rs 5.3 trillion, while the Hydrocarbon segment’s prospects improved to Rs 1.2 trillion (80% of the prospective business is from the Middle East). The strong bid pipeline is encouraging, although a faster conversion to final awarding holds the key to the company meeting the guidance of a low-to-mid-teen growth in order inflow,” the brokerage has said.
Buy L&T for a price target of Rs 2,285
According to Motilal Oswal After adjusting for the subsidiaries’ valuation (Rs 1,070 per shares), the core E&C business trades at an FY22/FY23E PE multiple of 15.0x/12.9x v/s the historical one-year forward average PE multiple of 22 times.
“Should the stock revert to its historical average trading multiple of 22 times, our target price for the stock will increase to Rs 2,285. Larsen and Toubro remains the best play on the capital expenditure cycle in India. Maintain Buy,” Motilal Oswal has said.
The shares of L&T last closed at Rs 1767 on the NSE.
Buy Maruti Suzuki
Motilal Oswal has set a price target of Rs 8,450 on the stock of Maruti as against the current market price of Rs 7,456. “Demand outlook remains good, with an improvement in both inquiries and bookings. Rural India is doing better and now constitutes over 43% of volume. It has an order backlog of 200k units due to a shortage of semiconductors,” the brokerage has said.
According to Motilal Oswal, precious metal prices have seen some softening, but will benefit in coming quarters due to the lag effect.
Valuation and view on Maruti Suzuki
Strong demand, softening commodity inflation, and improving chip shortage supports a margin recovery.
“We expect a recovery in 2HFY22 in both market share and margin, led by a favorable product lifecycle, operating leverage, and mix as well as price action/cost-cutting,” the brokerage has said.
“The stock trades at 59.1x/25.7x FY22E/FY23E consolidated EPS. We maintain our Buy rating with a target price of Rs 8,450 per share (27x Sep’23E consolidated EPS),” the brokerage has added.
Disclaimer
The above stocks are picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.
About the stock: Dixon Technologies is India’s leading electronic manufacturing
(EMS) provider and one of the largest beneficiaries of the government’s PLI scheme.
• Dixon operates in both original equipment manufacturing (OEM) and original design manufacturing (ODM)
• Revenue growth witnessed in the Q2 quarter of FY22, though the delay in price hike weighed on gross margins. Revenue increased but EBITDA and gross margin registered a decline. Profitability also rose YoY by 20 percent to Rs. 63 crore.
• Strong RoE, RoCE at around 20%, 24%, respectively (three year’s average).
Investors given the huge momentum in stock which has gained 9 times over the past 4 years are suggested to buy in the stock, valuing it at Rs. 5990 i.e. 51x P/E on FY24E EPS. This means an upside of 20 percent from current price level of Rs. 4993.55.
Key triggers for future price performance:
• Indian EMS industry is valued at $23.5 billion. Dixon currently has a market share of 3-4%, which leaves opportunity to expand and grow
• Domestic mobile production is set to grow 5x to Rs. 10.5 lakh crore by FY26 under PLI scheme. Dixon is one of the main beneficiaries
• New segments such as electronics/IT products, telecom products and LED lights & AC component will drive future revenue for Dixon.
Alternate Stock Idea: Other than Dixon, ICICI Direct also like Havells in our coverage
• Trigger for Havells’ future revenue growth would be a revival in Lloyds revenues and improvement in margin
• BUY with a target price of Rs. 1545.
2. Dalmia Bharat Sugar:
For this sugar manufacturer, ICICI Direct has set a target price of Rs. 610, implying return potential of 54.7 percent from current price of Rs. 394.3.
The company is being deemed to deliver consistent performance and is close to reach net debt free status.
Key takeaways about the company
• The company is expanding its sugarcane & molasses and grain based annual distillery capacity from current 8.5 crore litre to 21 crore litre, which would be completed in a phased manner by December 2022
Q2FY22 Results: Owing to higher exports the company delivered steady set of numbers. Sales came in flat on a year basis, EBITDA too saw a marginal decline and PAT rose over 6 percent YoY helped by lower reduced interest expense
Brokerage’s expectation on the stock going ahead
“We expect 2.5x increase in distillery volumes to boost earnings with CAGR of 16.1% during FY21-24E. We maintain our BUY rating on the stock
Target Price and Valuation: We value the stock at | 610, ascribing a multiple of 14x FY23 earnings”, adds the report.
Key triggers for future price performance:
• DBS is fastest in utilising B-heavy, sugarcane juice & grain route to produce ethanol. Distillery volumes to grow 2.5x to 21 crore litre by FY24
• The company been aggressive in exporting sugar & utilising higher global white sugar prices. Freight cost is much lower given its proximity to ports
• With the increasing profitability & reduction in sugar inventories, DBS would be generating cumulative free cash flow of Rs. 626 crore in the next three
years despite around Rs.700 crore capex
Alternate Stock Idea: The company is also bullish on Balrampur Chini. The company is second largest and one of the most efficient sugar companies in India. Along with sugarcane juice, B-heavy, the company is
also utilising grain based ethanol to leverage the ethanol opportunity in India. We value the stock at Rs. 515/share with a BUY recommendation”, adds the report.
Disclaimer:
The two scrips mentioned here are taken from the report ICICI Direct and readers should not construe them as recommendation to buy into these stocks. Stock market investment is risky. Please do your own study and analysis.
