Non-leveraged financials - 1QFY22 Results Preview Report - Brokers steal the limelight! - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

- Strong tailwinds for AMCs: Active equity witnessed net inflows of INR 222bn during 1QFY22 (FY21: INR 676bn net outflows), aided by SIP flows that clocked in at a healthy INR 266bn. Net inflows, coupled with N50/N200, returned 7.0/8.5% during 1QFY22, driving industry equity AUM higher by 12% sequentially. Higher equity prices and lower fixed income yields are expected to boost treasury gains. Given the sharp run-up in the stock price (44% over the past two months), we downgrade the MOFS to REDUCE (from ADD) with an increased TP of INR 900. We reiterate UTIAM as our top BUY with an increased TP of INR 920 (23.2x FY23E NOPLAT + cash + investments).

- Brokers on a one-way streak: Although Phase-3 of the upfront peak margin requirement for cash and derivatives kicked in during the quarter, ADTVs (ex-prop) for cash/derivatives increased +25%/-1% sequentially. The capital markets witnessed an unprecedented monthly addition of 2.4mn new retail investors over the past four months. We expect the larger organised players to see sustained market share gains. Increased retail activity and a market clocking all-time highs have supported higher volumes, thereby boosting broking revenues. Distribution income is also expected to improve sequentially as industry-wide active equity AUM grew 6.5% QoQ. We raise our revenue forecasts for ISEC to build in stronger revenue momentum on the back of higher ADTVs. We maintain our ADD rating on the stock with an increased target price of INR 720 (23x FY23E AEPS).

- GI - loss ratios to deteriorate: GDPI (ex-crop) growth improved during the first two months of 1QFY22E to 17.7% YoY (on a weak base at -7.6% YoY). Amongst the two large segments, health continued to show robust growth at 29% YoY (despite a positive base at 7.3%) while motor remained sluggish with 8.2% YoY growth. We expect a spike in loss ratios for the health segment from rising COVID-related claims and elective surgeries. We expect lower interest rates (YoY) to impact investment income, while FV change accounts should see higher unrealised gains as equity prices have improved. We maintain REDUCE on ICICIGI with a TP of INR 1,250 (FY23E P/E of 27.3x; P/ABV of 5.0x) as these steep valuations appear to ignore the risks from a softer pricing environment and potential de-tarification action for motor TP.

- LI - healthy growth in challenging times: On a favourable base (-23% in 1QFY21), private life insurers reported individual APE growth at +26% (two-year CAGR at 4% in 1QFY22). The savings business growth returned over the quarter whereas growth in protection seemed to slow down, as reflected in non-single premium sum assured/premium ratio moderating to 37.8% (-22% YoY). While the top three life insurers reported a negative two-year CAGR in 1QFY22E, MAXL delivered a whopping +14% growth, outperforming peers. While we expect all life insurers to report a sharp increase in mortality claims in 1Q, its one-off nature is unlikely to have a material impact other than lower VNBMs and higher provisions (YoY) in the near term. Our conviction on MAXL continues to revolve around compounding growth in a challenging environment, long-term partnership visibility with Axis Bank, and a strong focus on diversified and margin-accretive product mix. We raise our target price for MAXL to INR 1,180 (earlier target price INR 1,060), which translates to an implied multiple of 3.1x FY23E P/EV (+15% premium to SBILIFE).

Source : Equity Bulls

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