Category: Personal Finance

Chemical Stock To Buy This Week For A Decent Upside

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Buy Nocil for an upside target of Rs 315, says Axis Securities

NOCIL is a part of the Arvind Mafatlal Group, and is the largest rubber chemicals company in India. The company has manufacturing units in Navi Mumbai, Maharashtra and Dahej, Gujarat. It’s product portfolio includes accelerators, anti-oxidants, pre/post vulcanization products. The products manufactured are used by the tyre industry and other rubber processing industries.

Encouraging Market Conditions, says Axis Securities

According to Axis Securities, China Sunsine, a global leader in rubber chemicals saw a 22% volume growth and 38% rise in the ASP in H1FY21 and provided a positive growth outlook going forward which bodes well for NOCIL which as also experienced volume growth coupled with increase in ASP over the past few quarters.

Capacity augmentation to help

Capacity augmentation to help

According to Axis Securities, the company has expanded its capacity in the recent times to 110,000 tonnes which is expected to add at least 10% volumes every year in the medium term and continues to ramp-up capacity utilization of the current capacity. NOCIL company has guided for capacity utilizations to reach 80%-85% by FY2021 end and reach full capacity by September 2023,” the brokerage has said.

“The demand from the OEM segment has seen a could slowdown due to chip shortages, however the replacement demand could help offset the loss from OEM segment. This in-turn could benefit demand for rubber accelerators as demand for tyre increases thus benefitting players like NOCIL Ltd,” the brokerage has further added.

Valuations

Valuations

“We expect NOCIL to register Revenues/Earnings CAGR of 41%/72% resp. over FY21-24E driven by uptick in demand in domestic and global market due to buoyant replacement and OEM led demand and improving realizations trend as witnessed globally. We value NOCIL at 20x its FY24E EPS (17 times earlier) given the strong earnings growth potential and have a target price of Rs. 315 per share with a buy on the stock,” the brokerage has said.

We caution investors…

While we carry brokerage reports, which have a buy call from time to time, we wish to inform our readers that the Sensex has doubled from last year’s peak covid level losses. On most parameters stocks are expensive that to low interest rates, accommodative policies and a gush of liquidity flowing into mutual funds. One has to exercise some caution and invest small amounts as a precautionary measure.

Disclaimer

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only. Be careful while investing as the Sensex has now crossed 58,000 points. Investors can invest small amounts and avoid putting lumpsum.



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Bidders may walk away as NCLT delays erode value, tests patience, BFSI News, ET BFSI

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After the one-year suspension, the Insolvency and Bankruptcy Code (IBC) is now dealing with an acute shortage of members, or judges, that is forcing companies into liquidation which could have otherwise been revived.

Nearly 47 per cent or 1,349 cases closed under the insolvency law ended up in liquidation till the end of June this year but the economic value in the majority of the cases had eroded even before the commencement of the corporate insolvency resolution process.

The absence of members, the equivalent of judges, in the National Company Law Tribunal, which deals with both bankruptcy cases as well as those related to Companies Act matters, is showing and threatens to stall the landmark reform.

Bidders who are willing to take over the distressed companies may walk away due to the delays.

Depleted strength

The parliamentary standing committee on finance had noted that there were only 28 members in NCLT as against the sanctioned strength of 62. “The committee is deeply concerned to note that more than 50% of the sanctioned strength of NCLT is lying vacant and that the issue of vacancy has plagued the tribunal for years,” the panel observed, while noting how it had been working without a regular president either.

The report also showed how at the end of May, 71% of the IBC-related cases were pending in the NCLT for over 180 days when the law seeks to ensure that a case is decided within six months. At the end of May, over 40% of the cases filed in the tribunal were pending.

The recommendations for appointments are lying with the government for close to a year.

In contrast, fearing a rush of cases following the pandemic, the US had hired several of its retired judges to ensure that cases were decided quickly.

Parliamentary Committee suggestions

While speaking to ETCFO last month, Jayant Sinha, chairman of the Parliamentary Standing Committee on Finance, had suggested three steps to reduce litigation.

Firstly, fill the vacancies at NCLT as quickly as possible because then there is more time to adjudicate a case well and come up with a good resolution, he had said.

If judges don’t have enough time and rush through cases, they won’t give good judgments, and then things will end up in litigation. Therefore, adding capacity as soon as possible is one way in which we can deal with these endless litigation type issues.

Secondly, improve the quality of NCLT members. The parliamentary committee has recommended that the NCLT should at least have high court judges so that we can benefit from their experience and their wisdom. That’s another way to prevent litigation.

The third way of preventing litigation is to ensure when people submit the resolution plan as per the deadline, they do not have an opportunity to come in with another resolution plan after that. Because not doing so, will again rest in litigation, and a lot of contentions back and forth.

“So these are three very concrete steps that we have suggested to reduce litigation as it is one of the reasons a lot of these timelines are being extended,” he said.



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This NBFC Is Given A ‘Buy’ By HDFC Securities For 19% Gains In 2 Quarters

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1. Poonawalla Fincorp:

The NBFC company is a small cap scrip and since the reconstitution and capital infusion has strengthened its standing with focus on consumer and small business segments. NPAs position shall be improved going forward as risk monitoring as well as collection efficiency would come as help.

CARE has upgraded bank facilities

CARE has raised in value the long term bank facilities rating from to ‘CARE AA+; Stable’ from ‘CARE AA- (under credit watch with developing implications)’ and reaffirmed the short-term rating at ‘CARE A1+’ following the infusion of capital, induction of professional management, revised product focus towards better quality borrowers, and reduction in cost of funds.

Wholly owned subsidiary seeks to unlock value by launching an IPO in 2025

The company’s HFC Poonawala Housing Finance discounting the valuation of the peer group company plans to come up with an IPO in 2025 and also increase its AUM to beyond Rs. 10000 crore.

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Valuation:

Valuation:

“We feel Magma will achieve enhanced operating metrics and return profile in the medium term due to strong corporate group backing, >57% CAR (post infusion) v/s 20.3% in Q1FY21, improved credit rating outlook, and business competitiveness. The new promoters in addition to increasing the business in select areas in PFL may also look to unlock value in the subsidiaries at a future date. We expect a 22% CAGR growth in advances over FY21-FY23. Calculated NIM is expected to expand by 70bps to 9.1%, driven by lower cost of funds. RoA is expected to improve to 3% by FY23E. Though PFL faces challenge of growing its AUM despite a large book being discontinued, we think things can fall into place given the chance to the new promoters to prove themselves with new products, people and processes in place. Investors can buy the stock in the band of Rs 176-179 and add on dips to Rs 157-160 band (1.95x FY23E ABV) for a base case fair value of Rs 199 (2.45x FY23E ABV) and bull case fair value of Rs 215 (2.65x FY23E ABV) in the next two quarters”, said the brokerage in its report.

Other key notes:

Other key notes:

Phased execution strategy: The new management has laid out its vision for 2025. It aims to (1) be amongst the top-3 NBFCs for consumer and small/medium business finance and the most trusted financial service provider; (2) scale-up the current AUMs almost 3x with accelerated growth and calibrated underwriting approach, followed by value unlocking through IPOs of subsidiaries; (3) reduce cost of funds by ~200-250bps; (4) bring down net NPAs to below 1% and ((5) value unlocking through PHFL IPO. It has divided its strategy into smaller parts to be progressively achieved over the next 3 years, said the report.

New product launch for expediting growth:

While the company discontinued several of its products owing to their non-feasibility, many are in the pipeline such as loan against property, personal Poonawalla Fincorp Ltd. 6 loan, loan to professionals, co-branded credit card, machine loans and equipment loans, making a healthy mix of secured and unsecured businesses.

Aggressive re-pricing of debt:

The management is in negotiations with lenders and aggressively repricing its existing debt and raising incremental funds at industry best rates of interest. The incremental cost of borrowing for the company was below 7% in Q1FY22. The management intends to bring down the cost of borrowing by 200-250bps over the next few years. Lower costs would enable the company to lend at competitive rates and also to improve its profitability and improve its AUM.

Stock Last trading price as on September 7 Target Potential Upside
Poonawalla Fincorp Rs. 180 Rs. 215 19%

Disclaimer:

Disclaimer:

Note the stock is taken from the brokerage report and should not be construed as an investment advice.

GoodReturns.in



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SGX Nifty up 5 points; here’s what changed for market while you were sleeping, BFSI News, ET BFSI

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Domestic indices look set to take a breather on Tuesday after hitting record highs for three straight sessions. Technical charts are sending tepid signals while cues from Asian markets are also mixed as US markets were shut overnight on account of a public holiday. Dollar quoted near its recent lows while weak demand dragged crude prices lower. Here’s breaking down the pre-market actions:

STATE OF THE MARKETS

SGX Nifty signals a flat start
Nifty futures on Singapore Exchange traded merely 4.5 points, or 0.03 per cent, higher at 17,423.50, signaling that Dalal Street was headed for a tepid start on Tuesday.

  • Tech View: Nifty50 on Monday ended up forming a ‘Doji’ candle on the daily chart, suggesting indecisiveness among market participants at record highs.
  • India VIX: The fear gauge gained over 4 per cent to 15.10 level on Monday over its close at 14.54 on Friday.

Asian stocks mixed in early trade
Asian markets opened mixed on Tuesday, with investors cheered by the prospect of possible new economic stimulus under a future Japanese prime minister. MSCI’s broadest index of Asia-Pacific shares outside Japan was down by 0.13 per cent.

  • Japan’s Nikkei rallied 0.80%
  • Korea’s Kospi tanked 0.67%
  • Australia’s ASX 200 shed 0.39%
  • China’s Shanghai gained 0.02%
  • Hong Kong’s Hang Seng added 0.15%

US stocks shut on Monday
The US stock markets remained closed on Monday on the account of Labour day. On Friday, Wall Street ended mixed as the Nasdaq ended at a new peak but the other main Wall Street indices fell, reflecting the mixed sentiments.

  • Dow Jones shed 0.21% to 35,369.09
  • S&P 500 retreated 0.03% to 4,535.43
  • Nasdaq added 0.21% to 15,363.52

Dollar nears recent lows
The dollar hovered near recent lows as traders braced for a slew of central bank meetings from Australia to Europe and Canada this week, looking for any signs that they are making progress towards policy normalisation.

  • Dollar index slipped to 92.115
  • Euro gained to $1.1881
  • Pound steady at $1.3848
  • Yen firmed to 109.76 per dollar
  • Yuan appreciated to 6.4566 against the greenback

Oil wobbles on demand woes
Oil prices were wobbly on Monday as investors grappled with demand concerns after Saudi Arabia’s sharp cuts to crude contract prices for Asia. Brent crude futures for November rose 4 cents, or 0.1 per cent, to $72.26 a barrel. US West Texas Intermediate crude for October was at $68.88 a barrel, down 41 cents, or 0.6 per cent, from Friday’s close, with no settlement price for Monday.FPIs buy shares worth Rs 589 crore
Net-net, foreign portfolio investors (FPIs) turned net sellers of domestic stocks to the tune of Rs 589.36 crore, data available with NSE suggested. DIIs were buyers of equities to the tune of 547.31 crore, data suggests.

MONEY MARKETS

Rupee: The rupee on Monday declined by 8 paise to close at 73.10 against the US currency mainly due to the dollar’s gains in the global markets.

10-year bond: India’s 10-year bond yield jumped 0.28 per cent to 6.17 after trading in the 6.13 – 6.18 range.

Call rates: The overnight call money rate weighted average stood at 3.16 per cent on Friday, according to RBI data. It moved in a range of 1.95-3.40 per cent.

DATA/EVENTS TO WATCH

  • AU RBA Interest Rate Decision (10 am)
  • GB Halifax House Price Index AUG (11:30 am)
  • EA Employment Change Final Q2 (2:30 pm)
  • EA GDP Growth Rate 3rd Est Q2 (2:30 pm)
  • US 52-Week Bill Auction (9 pm)
  • US 3-Year Note Auction (7:30 pm)
  • US 6-Month Bill Auction (7:30 pm)
  • JP Leading Economic Index Prel JUL (10:30 am)
  • JP Coincident Index Prel JUL (10:30 am)

MACROS

Govt can bring Voda Idea $1b annual relief
A combination of reduced interest on deferred spectrum liability and an interest waiver on its adjusted gross revenue (AGR) dues can garner nearly $1 billion in annual relief for struggling Vodafone Idea (Vi) and boost its chances of survival, BNP Paribas said in a client note. It added that the loss-making telecom JV between UK’s Vodafone Plc and India’s Aditya Birla Group would be able to further cut its current Rs 1.9 lakh crore debt burden if the government allows it to surrender unused spectrum in non-priority markets, moves that would help the telco reduce the net present value (NPV) of its overall liabilities and improve future cash flows.

Third-party apps turn on UPI Autopay mode
The National Payments Corporation of India (NPCI) UPI Autopay service, which was launched last year, is gaining traction after a slow start with top merchants such as Netflix and Hotstar signing up. Unified Payments Interface (UPI) apps PhonePe and Google Pay are also in various stages of rollout and testing. The build-up in transaction momentum comes ahead of Reserve Bank of India (RBI) rules for card-based transactions through standing instructions that take effect next month.

Voda, Cairn flag terms for settling retro tax cases
Vodafone Group and Cairn Energy have raised concerns over proposed terms for settling retrospective tax cases that require them to provide declarations from stakeholders that they will not press any claims after the disputes are resolved. The two British companies raised these issues in feedback on draft rules issued by the Central Board of Direct Taxes (CBDT) last month.

India Inc talks to govt to gauge Afghan climate
The Indian industry has approached the government to assess its investments in Afghanistan and take a call on a plan of action — to continue, pull out or wait and watch. Industry groupings have also had talks internally on the matter and are awaiting political clarity.

Treating ESOPs as expense to erode earnings: Lenders
Bankers are either abandoning or cutting down on stock option plans and redrawing compensation for top executives as they shift to deferred bonus payments following the Reserve Bank of India’s diktat to add employee stock ownership plan (ESOP) as expenses in the profit and loss account.



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Dollar drifting as traders turn to central bankers, BFSI News, ET BFSI

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SINGAPORE: The dollar hovered near recent lows on Tuesday as traders braced for a slew of central bank meetings from Australia to Europe and Canada this week, looking for any signs that they are making progress towards policy normalisation.

The possibility of a tapering delay in the United States, after weaker-than-expeced jobs data on Friday, has put extra focus on policymakers elsewhere and put pressure on the dollar.

First up is Australia, where an announcement is due at 0430 GMT. The Australian dollar has paused a recent rally as markets wait to see whether lockdowns in Sydney and Melbourne have derailed plans to taper bond purchases.

The Aussie last bought $0.7447.

If the central bank pauses its tapering plans, traders are likely to sell the currency, possibly pushing the Aussie towards its support level around $0.7420, according to IG Markets analyst Kyle Rodda. A hawkish central bank would send the currency higher, he said.

Markets are also awaiting Chinese trade data due around 0300 GMT, expected to be weighed down by a slowdown in growth and disruption from COVID-related port closures.

On Wednesday, the Bank of Canada is expected to keep rates steady, but to maintain on course for a hike before the end of the year, shaking off a surprise contraction in the Canadian economy in the second quarter.

The Canadian dollar is hovering near its highest level in about three weeks and is above its 200-day moving average at C$1.2525 per dollar.

The main event of the week falls on Thursday when the European Central Bank meets, with the focus on a potential cut to the pace of bond purchases, particularly following some hawkish comments from policymakers last week.

A majority of economists polled by Reuters expect a slowdown in ECB bond purchases, especially after data last week showed inflation surging to a 10-year high. But an overnight rally in stocks and a dip in the euro suggests traders may not be betting on such a scenario.

After touching a one-month high in the wake of disappointing US labour data on Friday, the euro has been unable to hold above $1.19 and last bought $1.1881. The pan-European STOXX 600 index is within a whisker of a record high.

Elsewhere the Japanese yen was firm at 109.76 per dollar and sterling was steady at $1.3848. The New Zealand dollar edged 0.3% higher as the country appears to be containing a coronavirus outbreak and swaps markets are pricing in nearly 100 basis points of policy tightening by May.

Looming over the market and the central bank meetings this week is the stance of the US Federal Reserve, which has flagged asset purchase tapering before year’s end but has said it depends on labour markets which are suddenly looking wobbly.

Friday’s payrolls figures, which showed 235,000 jobs created last month against economists’ expectations of 728,000 were enough to sink chances of a tapering announcement this month, said NatWest’s head strategist John Briggs in a note – but it won’t be clear for another month how long the delay may be.

“It does not necessarily derail our current timeline of a November announcement for December start,” Briggs added said. “The next payroll report on October 8th now looms very large as the main event in considering the timing of tapering.”

In cryptocurrencies, bitcoin held above $50,0000 at $52,497 and smaller rival ether traded little changed at $3, 897 after topping $4,000 last week for the first time since mid-May.



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47% closed cases under IBC end in liquidation, many due to value erosion, BFSI News, ET BFSI

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Nearly 47 per cent or 1,349 cases closed under the insolvency law ended up in liquidation till the end of June this year but economic value in majority of the cases had eroded even before commencement of the corporate insolvency resolution process, according to IBBI.

A total of 4,541 CIRPs (Corporate Insolvency Resolution Process) were initiated till end of June and out of them, 2,859 were closed. Out of them, 1,349 CIRPs ended in liquidation while 396 ended in approval of resolution plans, as per the latest quarterly newsletter of the Insolvency and Bankruptcy Board of India (IBBI).

Liquidation

“About 47 per cent of the CIRPs, which were closed, yielded orders for liquidation, as compared to 14 per cent ending up with a resolution plan. “However, 75 per cent of the CIRPs ending in liquidation (1,011 out of 1,349) were earlier with Board for Industrial and Financial Reconstruction (BIFR) and / or defunct. The economic value in most of these CDs (Corporate Debtors) had almost completely eroded even before they were admitted into CIRP.

“These CDs had assets, on average, valued at around 7 per cent of the outstanding debt amount,” the newsletter said. In recent times, there have been concerns raised in certain quarters about the number of companies going into liquidation and steep haircuts taken by creditors under the Insolvency and Bankruptcy Code (IBC), which has been in force for nearly five years. IBBI is a key institution in implementing the Code.

Realisation by creditors

“Till June 30, 2021, realisation by FCs (Financial Creditors) under resolution plans in comparison to liquidation value is 167.95 per cent, while the realisation by them in comparison to their claims is 36 per cent. It is important to note that out of the 396 CDs rescued through resolution plans, 127 were in either BIFR or defunct,” the newsletter added.
Around 51 per cent of the CIRPs were triggered by Operational Creditors (OCs) while nearly 43 per cent were initiated by FCs.

“However, about 80 per cent of CIRPs having an underlying default of less than Rs 1 crore, were initiated on applications by OCs, while about 80 per cent of CIRPs, having an underlying default of more than Rs 10 crore, were initiated on applications by FCs,” it noted. According to the newsletter, the share of CIRPs initiated by CDs is declining over time and they usually initiated the process with very high underlying defaults

Also read the latest developments in IBC



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5 Cement Stocks To Buy As Per This Leading Brokerage

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Announcement of cement price hike

As per Emkay’s view, cement companies have announced a price hike of Rs 15-25 per bag in the South and Rs10-15 per bag month on month in other regions in September 21 in order to arrest any further price decline. The price hike is expected to be absorbed in the second half with a demand recovery and rising utilization levels.

“In Q2FY22 till date, average pan-India prices have likely declined 3% QoQ. Prices have declined 1-2% QoQ in the North and Central markets, 3% in the West and 4-6% in the South and East regions. Historically, cement prices correct seasonally by 2- 3% QoQ in the second quarter of the financial year,” the brokerage has said.

Margins under pressure in near term; likely to bounce back in H2

Margins under pressure in near term; likely to bounce back in H2

According to Emkay Global, the input cost inflation and seasonal correction in cement prices should keep margins under pressure in the near term. However, margins are likely to bounce back with demand/price recovery in H2FY22. Emkay Global maintains a positive view on the cement sector based on robust earnings compounding and a structural RoIC reset, with medium-term demand growth visibility and calibrated supply additions. Their top picks are Ultratech, Shree Cement, and Ambuja Cement.

Industry margins are likely to contract Quarter on Quarter in Q2FY22E, while EBITDA/ton may fall >10% Quartet On Quarter due to the seasonal price correction and cost headwinds. Average domestic petcoke prices have risen 55% YoY/21% quarter on quarter and average diesel prices have gained 23% YoY/7% QoQ. With an increase in international coal prices, companies are driving the fuel mix in favor of domestic coal and AFR usage.

Recent movement in cement price

Recent movement in cement price

The channel check conducted suggest that average pan-India prices declined 3% month on month in August 2021. The moderation in prices was primarily led by a 6% month on month decline in the East, while prices in other regions fell in the range of 2-3% month on month in August 21. On a year on year basis, prices were broadly flat in the North, West and Central regions, but they dropped 2-3% in the East and South regions.

Stocks to buy from Emkay Global from the cement space

Stocks to buy from Emkay Global from the cement space

Company name Current market price Target price
Ultratech Cement Rs 7956 Rs 8500
Shree Cement Rs 30,423 Rs 31,200
Ambuja Rs 437 Rs 445
Dalmia Rs 2269 Rs 2,470
ACC Rs 2,469 Rs 2,580

Disclaimer

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. The above article is for informational purposes only and is picked from the brokerage report of Emkay Global. Be careful while investing as the Sensex has now crossed 58,000 points. Investors can invest small amounts and avoid putting lumpsum.



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3 Infrastructure Stocks To Buy For Gains In Future As Recommended By Sharekhan

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Pick-up in revenue helped better absorption of fixed cost

According to Sharekhan, despite the quarter being affected by COVID-19-related problems, the infrastructure sector recorded a 52.6 percent year-over-year increase in revenue (down 24.1 percent q-o-q), as all companies save Sadbhav Engineering Limited (SEL) reported better-than-expected execution.

Liquidity limitations and delays in receiving scheduled dates for EPC contracts continued to plague Sadbhav Engineering.

Higher execution, lower depreciation (down 10% y-o-y), and lower financing expense (down 19% y-o-y) drove operating profit growth of 57 percent y-o-y and net profit increase of 2.7x y-o-y in our infrastructure universe (ex-SEL), the brokerage says.

Outlook and valuation on Infrastructure space

Outlook and valuation on Infrastructure space

“The infrastructure sector may see seasonal impact on execution although order book tendering and execution is expected to gather pace from Q3FY2022. We expect the logistics sector to benefit from pick-up in demand expected from August 2021 with the onset of the festive season, the brokerage has said.

Valuation

“We choose firms like KNR Construction, PNC Infratech, and Ashoka Buildcon in the infrastructure market because they have a high order backlog, timely execution skills, and robust balance sheets. We choose companies with asset-light business strategies, such as Mahindra Logistics, Transport Corporation of India, and TCI Express, and organisations with high-quality assets, such as Gateway Distriparks,” the brokerage has said.

3 Infrastructure Stocks To Buy For Gains In Future

3 Infrastructure Stocks To Buy For Gains In Future

Key Risks

Macroeconomic weakness would lead to lowering of estimates and valuation multiples of companies.

Leaders in Q1FY2022: KNR Constructions, Ashoka Buildcon, PNC Infratech

Preferred Picks: KNR Construction, PNC Infratech

Infra company Current Market Price Rating Target Price
Sadbhav Engineering Rs 48.20 Hold Rs 68
KNR Constructions Rs 319 BUY Rs 350
Ashoka Buildcon Rs 101.80 BUY Rs 125
PNC Infratech Rs 360 BUY Rs 386

Disclaimer

Disclaimer

The above stocks are based on the report of Sharekhan. Investing in stocks is risky and investors should do their own research. The author, the brokerage firms or Greynium Information Technologies are not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as are at record peaks. Please consult a professional advisor.



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Bluechip Life Insurance Stock To Buy For Good Gains In 1-year

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Buy HDFC Life Insurance for 18% gains

Current market price Rs 737
Target price Rs Rs 870
Gains % 18.00%
Target time frame 12-months

The brokerage has set a target price of Rs 870 on the stock, as against the current market price of Rs 737, thus implying returns of 18%.

HDFC Life to acquire Exide Life

HDFC Life to acquire Exide Life

HDFC Life is set to acquire 100% of Exide Life for a total consideration of Rs 66.87 billion. According to Emkay Global, at 2.5 times Jun’21 EV, the valuation paid for Exide Life far exceeds the quality of franchise.

“The 2.5x P/EV (Jun’21) paid to Exide Life appears to be at a significant premium over its

intrinsic value. The three listed peers of HDFC Life currently trade at 3.5x Jun’21 enterprise value. It is worth noting here that these listed peers have a very strong brand, massive economies of scale, formidable bancassurance distribution and sustained high operating return EV,” the brokerage has said.

Valuation premium means little for HDFC Life but might delay consolidation in the sector

Valuation premium means little for HDFC Life but might delay consolidation in the sector

According to Emkay Global, the valuation premium of Rs 40 billion over the enterprise value of Exide Life means 3% of HDFC Life’s current market cap.

“However, the valuation of 2.5x P/EV for a franchise without any material banca distribution sets an expectation benchmark for other such struggling companies. Given that not many of the sector leaders would be keen on paying such a premium valuation for a weaker franchise, this would delay the consolidation process in the sector,” the brokerage has said.

“The share of current Top-8 private life insurers (SBI Life, IPRU Life, HDFC Life, Max Life, Bajaj Allianz Life, Tata AIA Life, Kotak Life and Birla Sun Life) in the private sector new business WRP has gone up to 83% in FY21 from 71% in FY14. So, these Top-8 players are not really facing real competition from the smaller players. On the other hand, the smaller players, especially the ones without material bancassurance, have been struggling. All these factors point to the fact that there are many smaller players up for sale and there are not many suitors for the firms without sizeable bancassurance distribution. In this background, the premium valuation paid for Exide Life looks unwarranted,” Emkay Global has said.

Highlighting some points from a concall, Emkay global has stated that according to the management the acquisition complements HDFC Life’s geographical presence as Exide Life has a strong foothold in South India, especially in tier 3 towns, which will give HDFC Life access to a wider customer base.

HDFC Life shares were last trading at Rs 736 on the NSE.

Disclaimer

Disclaimer

The article is informational in nature, which is taken from the brokerage report of Motilal Oswal institutional Equities. Please do consult a professional advisor. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and authors do not accept culpability for losses and/or damages arising based on information in the article.



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