Tag - M&A

25 Jan

The upward trajectory in VNB margin to continue – HDFC Life

Update on the Indian Equity Market:

On Tuesday, NIFTY50 snapped its five-day losing streak amid a volatile session. The index closed at 17,278 (+0.8%) as investors await more financial results in India and the outcome of the Fed Reserve meeting scheduled on Wednesday.

Among the sectoral indices, PSU BANK (+4.2%), AUTO (+2.3%), and MEDIA (+2.2%) led the gainers. IT (-0.3%) was the only sector which ended in the red. Among the stocks, MARUTI (+7.4%), AXISBANK (+6.5%), and SBIN (+3.9%) led the gainers while WIPRO (-1.6%), BAJAJFINSV (-1.4%), and TITAN (-1.2%) led the laggards.

Excerpts from an interview of Ms. Vibha Padalkar, MD& CEO, HDFC Life with Economic Times dated 24th January 2022:

  • HDFC Life reported 3QFY22 earnings, and all channels reported growth. In terms of the product mix, after 2 quarters’ lull, the individual protection grew by 20% YoY. Annuity continues to do well and reported 39% YoY growth.
  • On a standalone basis, the VNB margin (a profitability measure) has increased from 26.4% to 26.8% due to higher volumes and a balanced product mix. The CEO believes the upward margin trajectory will continue.
  • COVID-19 claims have reduced significantly in 3QFY22. From the peak of Rs 3,000mn claims in 2QFY22, the claims were reduced to Rs 170mn in 3QFY22. Due to the ongoing Omicron wave, the company has strengthened its mortality reserves and is carrying Rs 1,550mn of extra reserves.
  • The company has hiked its prices by 15-25%, which it believes was necessary. While the retention amount has increased, there was no impact on the solvency as reserves were carried at higher levels. Ms. Padalkar believes that price hikes for life insurance products and health insurance products are bound to happen due to inflation.
  • The solvency ratio was 190% before the cash payout for the Exide Life acquisition. The solvency was over 200% in 3QFY21, which was more of an aberration. The company maintains solvency in the 190-195% zone. She expects profits generated in 4QFY22 will add to the solvency of the company. Second, they have raised Rs 6,000mn as subordinated debt. If the need be, they can increase the subordinated debt levels.
  • The first step of the Exide Life merger with HDFC Life is complete. The next step is about 9months to a year away when the full integration happens and HDFC Life will be able to enjoy synergies. It will add 30-35% to the company’s agency channel and deepen its presence in South India and tier two and three towns.
  • The CEO believes the third wave has peaked in several parts of India indicating demand and all the macro indicators are robust. People’s attitude towards insurance has changed.
  • A lot of people reaching retirement age are thinking about getting annuity plans as they realise they will outlive their retirement age by ~20 years or more. The company’s retirement focus campaigns are also enlightening people.
  • The company is very close to its ideal product construct which is about a third unit-linked, about third participating products, and the balance non-participating savings products.

Asset Multiplier comments:

  • The insurance sector is a multi-decadal opportunity in India due to the under penetration and protection gap.
  • We believe the Company has maintained significant provisions to provide for claims expected due to the third wave. This coupled with a dynamic and balanced business mix, protection business strategy, and the expected pickup in agency business augurs well for the growth of the company.

Consensus Estimate: (Source: Market screener website)

  • The closing price of HDFC Life was ₹ 630/- as of 25-January-2022.  It traded at 94x/ 72x/ 62x the consensus EPS estimate of ₹ 6.7/ 8.7/ 10.2/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 787/- which implies a PE multiple of 77x on FY24E EPS of 10.2/-.
  • In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By HDFC Life Insurance, Life Insurance , , 0 Comments Read more...
06 Sep

Exide Life to add 30-40% agency force – HDFC Life

Update on Indian Equity Market:

On Thursday, NIFTY ended at 17,378 (+0.3%). Among the sectoral indices, REALTY (+3.2%), IT (+1.5%), MEDIA (+1.3%) ended higher, whereas PRIVATE BANK (-0.5%), BANK (-0.5%), and FINANCIAL SERVICES (-0.3%) ended lower. Among the stocks, WIPRO (+5.0%), HCL TECH (+2.7%), and INFOSYS (+1.8%) led the gainers while IOC (-1.6%), IndusInd Bank (-1.2%), and ONGC (-1.2%) led the losers.

Excerpts of an interview with Ms. Vibha Padalkar, MD & CEO, HDFC Life Insurance with ET Now on 3rd September 2021:

  • The potential target company needs to have a credible distribution which Exide Life has. Exide Life has a strong agency channel and another aspect is the quality of the book.
  • Exide Life has a scale issue which is a problem for many smaller players. Presently, Exide Life has 37,000 agents and a lot of them are highly productive. This will add about 30% to 40% of agency force to HDFC Life.
  • Exide Life has a strong presence in the southern regions of India and also in tier II and III towns, about 40% of business comes from these geographies. This is complementary for HDFC Life which has a focus on Metro cities.
  • About 89% of the consideration is in share swap form. About 11% which is worth Rs 7,260mn will be a cash payout. After the share issue happens, Exide Industries will be on-boarded as HDFC Life shareholder with a 4.1% stake in the merged entity.
  • The first phase of the merger is after the CCI & IRDAI approval, HDFC Life will be able to issue shares to the seller and the entity becomes a subsidiary of HDFC Life. After that HDFC Life will go approach the NCLT for merger approval of the subsidiary into the parent company. But after the first phase HDFC Life will have a control over the business.
  • Due to the cash payout of Rs 7,260 mn, HDFC Life’s current solvency ratio will go down by about 15%. As this will happen after a few months, fresh profit will be generated by the company and the solvency ratio start recovering.
  • Exide Life’s embedded value is about Rs 27bn. HDFC Life is reasonably satisfied of the quality of their embedded value does not believe that there would be any material impact to that embedded value after HDFC Life take control of the entity.

Asset Multiplier Comments:

  • This deal has could expand HDFC Life’s presence in the southern regions of India. Growth is likely to be driven from the tier II and III towns as Exide Life has a strong presence in these geographies.
  • This deal is beneficial for HDFC Life in terms of distribution mix and product mix. This acquisition will improve the new business margins because of product mix and HDFC Life has focused on creating diversified channels and products.

Consensus Estimate: (Source: market screener website)

  • The closing price of HDFC LIFE was ₹ 735/- as of 06-Sept-2021. It traded at 100x/80x/67.7x the consensus EPS estimate of ₹ 7.3/ 9.2/ 10.8 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 777/- implies a PE multiple of 67.7x on FY24E EPS of ₹ 10.8/-
  • In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By HDFC Life , 0 Comments Read more...
15 Jul

Slow and steady recovery over the next 2-4 years – Info Edge

Update on the Indian Equity Market:

On Tuesday, amid rising coronavirus cases and fresh lockdowns being imposed in some of the Covid-19 hotspots in India, the Nifty50 ended 1.8% lower at 10,607. PRIVATE BANK (-3.3%), PSU BANK (-3.1%), and BANK (-3.2%) dragged the index lower. PHARMA (+0.5%) was the only sectoral index to end in the green. Among the Nifty50 stocks, DRREDDY (+1.9%), TITAN (+0.9%), and BHARTIARTL (0.3%) were the only gainers. INDUSINDBK (-5.5%), AXISBANK (-4.9%), and EICHERMOT (-4.5%) led the laggards.

Edited excerpts of an interview with Hitesh Oberoi, MD & CEO, Info Edge India with Economic Times on 13th July 2020:

  • The months of April and May witnessed lockdown and a halt in all business activities. The JobSpeak Index published monthly is closely linked to revenue on their platform and it has gone up by 33%. The activities on all the platforms- 99acres, Naukri, Shiksha, and Jeevansathi are almost back to normal.
  • They are growing 25-30% in the emerging markets already. The big cities like Mumbai and Delhi, which are more impacted by Covid and lockdown, they are still down 25-30%.
  • Revenue in Naukri and all the verticals will follow with a lag, that’s how it always works. Green shoots in sectors like IT, healthcare, pharma, and tech can be seen. Other sectors like travel, tourism, hospitality, and auto things continue to be 70-80% below where they were last year.
  • The company is a cash-rich company, with Rs 1,500 crore cash with a 50% EBITDA margin and they see a lot of opportunity going ahead. There are four verticals from an internal business standpoint: jobs, real estate, matrimony, and education.
  • Although the company is a clear leader in jobs, they want to do many things in that vertical, which will require investment over time. They already have a play in recruitment automation which they want to scale up. They invested in an HR services company, createHR, and are looking at what can be done in adjacent spaces.
  • Things are only getting started right in the real estate vertical. They are currently in the residential buy segment and plan to get into rentals and commercial real estate. Even in the residential buy segment, the plan is to break away from the rest of the pack and investment will be required in multiple areas, going forward.
  • On the matrimony portal, Jeevansathi volumes have doubled or tripled in the last couple of years. There is still a long way to go as it is still the number three player.
  • In all the verticals, investments will be made in the product development, branding, and innovation. A lot more strategic investing will be done in adjacent areas.
  • They have invested in three education companies in the last year and are open to the idea of acquiring companies and doing more M&A in the categories they operate in. To be able to do these activities, the cash they currently have won’t be sufficient, hence the board has enabled QIP to raise more money.
  • Capital raising is not something which is done every year, it is done maybe once in five to seven years. Hopefully, the capital raised will last for a couple of years. Info Edge has never done a large M&A but done a bunch of strategic investments. At the same time, to buy any company in the internet space, a lot of money is required. They do not want to risk all the money they have in the bank on an M&A. Should an opportunity arise to buy a distressed asset or something that will help gain market share, they want to be ready and that is why they are raising funds.
  • About a year ago, Zomato was losing $ 40 million a month which was brought down to $ 20 million a month before Covid. April and May were bad for all companies, including Zomato and Swiggy. Due to Covid, the volumes have fallen and the business is down to about 50% levels. The crazy discounting, spend on customer acquisition which companies were doing is now over and companies are focusing on fixing their supply chains and other issues. As a result, Zomato which was losing ₹ 30-40 an order till some time back, is now making ₹ 30 an order.
  • Zomato is now very comfortable on cash and has enough money in the bank to last them a couple of years. There are a lot of investors interested in investing in Zomato and talks with a few are going on right now.
  • People not being able to go out and dine anymore like they used to, is probably a big opportunity for all the delivery companies. Since dining out can be very expensive, people were doing that maybe once or twice a month. For that kind of money, they can order in food maybe twice or thrice. Consumers do not want to just eat home food all the time and since going out to dine is unsafe, ordering in will therefore increase.

Consensus Estimate: (Source: market screener website)

  • The closing price of Info Edge (India) was ₹ 2,899/- as of 14-July-2020. It traded at 112x/ 81x the consensus earnings estimate of ₹ 25.8/ 35.9 per share for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 2,557/- implies a PE multiple of 71x on FY22E EPS of ₹ 35.9/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

By Info Edge, Miscellaneous , , 0 Comments Read more...
27 Dec

Focus on vertical strengthening of product portfolio, market momentum expected in Q4: Sunil Bothra, Minda Industries

Update on the Indian Equity Market:

On Thursday, Nifty closed 0.7% lower at 12,126. Among the stocks, ONGC(+2.5%), Vedanta (+1.9%) and JSW Steel (+1.0%) were the gainers. Yes Bank (-4.4%), Bharti Airtel (-2.0%), and Reliance (-1.9%) ended in the red. Nifty Media (+0.1%) and Nifty Metal (+0.6%) were the only sectors which ended in the positive. Nifty PSU Bank (-1.5%), Nifty Pharma (-0.9%) and Nifty Bank (-0.9%) were the worst-performing sectors.

Focus on vertical strengthening of product portfolio, market momentum expected in Q4: Sunil Bothra, Minda Industries

Excerpts from an interview with Mr Sunil Bothra, Executive Director and Group Chief Financial Officer, Minda Industries:

  • The existing sensor business is more than 5 years old and as part of their strategy, they are in a long-term partnership with Sensata Technologies.
  • Sensata, which was previously Texas Instruments have many businesses which are into defence and other technologies.
  • Minda Industries has entered into an agreement with Sensata to acquire the wheel speed sensor business. The agreement will help to acquire the customer base in India and South Korea and will also make global opportunities available.
  • Although the acquisition cost only ₹ 45 crore, it is expected to generate an additional revenue of ₹100-120 crore in the next four years. With this acquisition, the fresh investment in the sensor business will reach ₹ 145 crore and it is expected to generate revenue of ₹ 500-600 crore in the next 4-5 years.
  • The company has been focussing on vertically strengthening the product portfolio, which they have done by undertaking small acquisitions. Now that they have more than 30 businesses or products, the focus is on strengthening their technological capability and offering to the OEs.
  • The recently concluded acquisition of Delvis will help strengthen their technology position in 4-wheeler lamps, thereby strengthening the sensor business.
  • Talking about the demand, he said the company has seen some green shoots in October, which led to a little increase in volume in a few original equipment manufacturers in November.
  • Since December is generally a lean period, Q3 is not very bullish as compared to Q2.
  • Some market momentum is expected in Q4. But they will have to wait and see how the market pans out post the BS-VI launch from April 1, since there will be price impact of 10-12%.
  • If they are able to increase their kit value per car or 2-wheeler or OE in Q4, they are hopeful of continuing the overperformance in the near future.      

Consensus Estimate: (Source: market screener website)

  • The closing price of Minda Industries was ₹ 348 /- as of 26-December-19. It traded at 32.8 x/ 23.4x / 18.5x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 10.6/14.9 /18.8 respectively.
  • Consensus target price of ₹ 383/- implies a PE multiple of 20.4x on FY22E EPS of ₹ 18.8/-.
By Auto Ancillary , , , 0 Comments Read more...