Author: root

1. SBI Cards and Payments Services:

The large cap stock, from the boutique of the country’s leading state-run lender SBI, SBI Cards has been recommended a ‘Buy’ for a target price of Rs. 1200 in the short term of 12 months. The target set out by the brokerage firm ICICI Direct for the scrip implies gains of over 16 percent considering the stock’s LTP of Rs. 1029.9.

SBI Cards is the country’s second largest credit card issuing company i.e. into a high margin business with impressive return ratios. RoE stands at over 25%, while RoA is over 5%.

Q1Fy22 results show gradual recovery in operations

As per the brokerage, even despite the raging second Covid wave, the credit card issuing company posted gradual pick in operational performance. Notably some of the key performance measures such as NII, NIM that are indicative of revenues have been positive. Also the asset quality at the finance term lending institute improved.

Resilience in spends, digitization, improved asset quality to trigger SBI Cards’ future price performance:

The brokerage firm believes that increasing spending together with the opening up of the economy will fuel the firm’s business growth. Improved asset quality with lower non-performing assets (NPAs) and increase in revolver, EMI book to improve margins. Further, digitization will be a big positive for the credit card category. ICICI Direct sees return ratios to improve with RoE, RoA at 6.5%, 28.5%, respectively, by FY23E.

ICICI Direct values the scrip of SBI Cards at approximately 12x FY23E ABV to arrive at a revised target price of Rs. 1200 from Rs. 1100 earlier, said the brokerage report.

SBI Cards current market price	Rs. 1029.9
Target price	Rs. 1200
Potential upside	16.52% in 12 months
Gains since listing in March 2020	Close to 50%

2. Indian Hotels:

For this hospitality scrip i.e. a mid cap stock, ICICI Direct has set out a target price of Rs. 170 to be realized in a short span of 12 months. This means a straight forward gain of 19.5% from the last traded price of Rs. 142.25.

Indian Hotels with a number of reputed brands in its portfolio including Taj, Vivanta, Ginger and SeleQtions enjoys a diversified position in the hospitality industry. Plus it also caters to the luxury segment in global locations such as the US, Maldives etc.

Cost optimization, ability to raise low-cost debt- Big positive for Indian Hotels

The company amid the disruption caused by the pandemic took the path of cost optimization in FY21 which will prove beneficial in the long run. The brokerage firm expects hospitality company’s EBITDA margins to grow by more than 24% by FY23E. Also the company has a strong potential to raise loan involving low cost. Also, the company’s balance sheet position will serve as a cushion to face the challenges ahead.

Operational loss narrowed in q1FY22 on a YoY basis; Covid second wave impact felt

Similar to the entire hospitality industry, Indian Hotels also bore the brunt of the second wave. Nonetheless the 2 positives noted by the brokerage include a sharp jump in average room rate by 45% YoY to Rs. 7024 per room. Operational loss also declined on a YoY basis to Rs. 149 crore.

ICICI Direct maintains its ‘Buy’ on Indian Hotels and value it at Rs. 170 i.e. 23x FY23E EV/EBITDA.

Indian Hotels current market price	Rs. 142.25
Target price	Rs. 170
Potential upside	19.51%

3. Siyaram Silk Mills:

ICICI Direct has maintained its ‘Buy’ call on the small cap scrip of Siyaram Silk i.e. into manufacturing of fabric and apparel. The company is selling its product line under various brands including Siyaram (flagship brand), Oxemberg, MSD and J Hampstead

Resilient Q1FY22 performance

Siyaram Silk Mills has logged QoQ de-growth of 54% to Rs. 233 crore. Nevertheless, gross margin improved. Lower other income led to decline in profitability with PAT down 78% QoQ.

ICICI Direct values the stock of Siyaram Silk Mills at Rs. 455 i.e. 14x FY23E EPS.

Demand recovery, low-leverage and cost rationalization to boost stock’s performance

Post lifting or lessening of the coronavirus led restrictions as and when trade activities pick up pace, the company would benefit from recovery in demand.

Improved capital efficiency and profitability will enable the company to realize optimal RoCE of appx. 17% by FY23E.

25% cost savings through cost rationalization implemented in FY21 would help in improvement in EBIDTA margin going ahead.

Sales of Siyaram Silk for July 2021 month is trending close to 70% of the pre-Covid level and will further pick up pace during the festivities.

The company’s debt/equity is now reduced to 0.2x in FY21 from 1.0x in FY12.

Buy Siyaram Silk For a target of Rs. 455, Says ICICI Direct

Siyaram Silk Mills current market price	Rs. 393.05
Target price	Rs. 455
Potential upside	15.76%

Disclaimer:

Stock market investment poses a risk of financial loss being high on risk. Also, note above stock picks are taken from the brokerage report of ICICI Direct and need not be construed as investment advice.

GoodReturns.in

Insurance

oi-Kuntala Sarkar

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Published: Friday, August 13, 2021, 19:52 [IST]

Finance Minister Nirmala Sitharaman introduced The General Insurance Business (Nationalisation) Amendment Bill, 2021 in the Lok Sabha on 30th July, 2021. The bill has been recently passed by the Rajya Sabha and was already passed in the Lok Sabha on 3rd August. The opposition parties were certainly not pleased with the amendment in the bill and demanded that it should be referred to the committee of the House.

What does the amendment say?

The amendment in the bill provides a greater scope of private participation in the public sector general insurance companies. This amendment will change the General Insurance Business (Nationalisation) Act, 1972 – which was introduced to nationalise all the private companies undertaking general insurance business in the country.

The bill will be introduced to 3 new major changes. The amendment will exclude the proviso to Section 10B of the Act. Hence it will omit the clause that says that the union government must hold at least 51% of the shareholding. This is the key point to encourage more private investment in the sector. The amendment will also introduce a new section 24B. It will provide for “cessation of application of the Act to such specified insurer on and from the date on which the Central Government ceases to have control over it.” The last change is going to have another new section 31A. This will provide for “liability of a director of the specified insurer, who is not a whole-time director, liable for any acts of omission or commission committed with his knowledge and consent.”

The union government was already on the track for more private investment in the sector

Finance Minister (FM) in the union budget, 2021 already increased the FDI limit in the insurance sector from 49% to 74%. That was one of the most significant steps towards the privatisation of the insurance sector in the country. The FM also said in the budget speech, “We propose to take up privatisation of two Public Sector Banks and one General Insurance company in the year 2021-22. This would require legislative amendments.”

FM at that time announced that the Initial Public Offering (IPO) of LIC will be implemented in FY22. It is going to be a part of the consolidation in the banking and the insurance sector. No formal market valuation has been undertaken till now, but the company is expected to have the potential to raise Rs. 1 lakh crore, according to industry insiders. An IPO is a stock launch by the government in which “shares of a company are sold to institutional investors and usually also retail investors”.

Now, in India total of 4 general insurance companies are performing in the public sector, namely the National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited, and the United India Insurance Company Limited. The decision about which one will be privatised after the amendment is yet to be taken.

India has a considerably large insurance market

Data published by the Insurance Regulatory and Development Authority of India (IRDAI) states, “25 general insurance companies recorded a 10.8% increase in their collective premium in January 2021 to Rs. 16,247.24 crore (US$ 2.24 billion) compared with Rs. 14,663.40 crore (US$ 2.02 billion) in January 2020.”

According to IBEF data, “India’s insurance penetration was pegged at 3.76% in FY20. In terms of insurance density, India’s overall density stood at US$ 78 in FY20.” Commenting on the private participation it added, “The market share of private sector companies in the general and health insurance market increased from 47.97% in FY19 to 48.03% in FY20.”

This indicated a continuous private sector growth in the overall insurance sector in India. With the newly introduced amendments, private participation in the general insurance sector will increase further, and they will slip in the presently public-owned companies steadily.

Story first published: Friday, August 13, 2021, 19:52 [IST]