Brokers and general insurers to post stronger 4QFY20 vs. asset managers and life insurers - HDFC Securities

4QFY20 Preview of Insurance and Capital Markets - HDFC Securities

Life insurance. Growth for pvt. indiv. APE was lower at just 6.1% YoY during Jan/Feb-20. Additionally, APE growth will get impacted by the lockdown in Mar-20. Overall, we believe the lock-down will have significant impact on 4QFY20E and FY21E on both sales and earnings of life insurers. Contribution from March month was high in FY19 for HDFCLIFE/MAXL at 16.7/22.2% vs. for SBILIFE/IPRU at 13.2/13.2%. Additionally, we estimate ~40-60% of business in March is generated in the last 10-12 days. Accordingly our FY20E APE estimates stand revised downwards by 3.7- 17.1%, with SBILIFE least impacted (-3.7%) and MAXL most impacted (- 17.1%). Lower scale will also result in slightly lower margins for FY20E. We have reduced our FY20 VNB margin expectations by 30-90bps across companies. SBILIFE is our top pick with a TP of Rs 1,046 (+41.0%).

General Insurance. Total industry GDPI (ex. crop) growth in Jan/Feb-20 is 14.4% YoY; pvt. multi-line insurers have grown at 19.1% YoY, while public insurers have grown just 6.7%. We expect sharp slowdown in the month of Mar-20 given the lock-down. Accordingly, we expect 4QFY20 premium growth to be significantly impacted. While premium growth is expected to remain weak, CORs are expected to improve as claims ratios will decline for motor, property and other misc. segments (higher share in mix), vs. increasing for health (lower share). ICICIGI: Driven by higher motor TP and health segments, we expect ICICIGI to deliver a 9.7% YoY growth in NEP (ex. crop). Decline in new vehicle sales in Mar-20 is expected to adversely impact GDPI growth in 4QFY20. CORs are expected to remain stable in 4QFY20.

Asset Managers. Despite a difficult 4QFY20 where Nifty/Midcap index plunged 29.3/31.6%- Total equity (ex. ETF and ex. arb) inflows sustained at Rs 252.6bn (+42% YoY). 4QFY20 lumpsum inflows were Rs (4)bn. We expect lumpsum redemptions to continue into FY21 as investors tap into their savings as a result of the lockdown. We also believe that SIPs too, may take a hit. Mutual fund revenues and profits will get impacted as AAUM for 4QFY20 is hit. Additionally, this also flows into FY21. We have accordingly revised our FY21E APAT estimates downwards for lower flows and MTM. Given sharp price correction we upgrade Nippon Life India Asset Management (NAM) to a BUY with a lowered price target of Rs 349 (40x Mar-22E NOPLAT + cash & investments). At CMP of Rs 287 stock trades at a FY21E/22E P/E of 31.8/27.8x.

Brokers. We expect increased ADTVs and market volatility to contribute positively to broking revenues and earnings in 4QFY20. However lower prices will impact broking ADTVs and revenues in FY21. Over medium to longer term we do believe that industry will consolidate and larger brokers will survive. Distribution income will get negatively impacted with lower equity prices and lower upfront revenues from sale of PMSs. ISEC: Post recent stock price correction (-41.9% in Mar-20) we maintain SELL with TP of Rs 285. Our TP implies a multiple of 18x and FY21E/22E EPS estimate of Rs 13.7/15.9. At CMP of Rs 335 stock is trading at FY21E/22E P/E of 24.4/21.1x.

Source : Equity Bulls

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