Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities
Despite being India's largest insurer, New India Assurance (NIACL) continues to make high underwriting losses. We note that the company's competitive positioning is weakening and remain concerned about its ability to write profitable business. We estimate an FY22E adj. ROE of just 6.5% and can at best assign a valuation of just 0.7x Sep-22E ABV (less 10% discount for an additional 10.4% supply). We rate NIACL a SELL with an increased TP of Rs 103.
2QFY21 highlights: NWP at Rs 65.8bn grew +9.7/-3.7% YoY/QoQ as Fire posted strong growth (+18.9%/-28.0 YoY/QoQ) along with Health portfolio growing 6.9% YoY. NWP for Crop grew 1.5x YoY. Ex-crop, NWP grew 3.4% YoY to Rs 59.3bn. NEP at Rs 66.0bn grew 12.1/8.9% YoY/QoQ and was 7.6% ahead of estimates. Share of Motor in NWP improved 780bps QoQ to 36.7% as new motor vehicle sales picked up. Fire/Health saw declines of 360/1,370bps in the mix. Overall 2QFY21 COR was 697bps above estimates as claims ratio shot up 1,820bps QoQ to 82.1%. Claims ratio seems to have increased for Health and Engineering. Investment income (net of provisions) was at Rs 13.4bn (-21.9/55.7% YoY/QoQ). Full provisions on investments in debentures of DHFL/RHFL for Rs 374/874mn were made in 2QFY21. Realised investment yield improved to 9.2%, most likely as NIA booked profits on equity investment; total investment yield (including MTM) for the quarter was 12.2% (annualised), given strong equity market performance. Solvency remains strong at 214% (+600/+300bps YoY/QoQ). Higher-than-estimated underwriting losses were partially offset by higher investment income, resulting in a +2.6/57.7% YoY/QoQ APAT of Rs 6.6bn. RPAT came in at Rs 5.7bn (+1.5/78.0% YoY/QoQ).
Outlook: We expect FY21E to be a muted year in terms of NEP/APAT growth (FY21E: 4.6/-38.5% YoY); however, we expect underwriting losses to reduce substantially (-56.1% YoY).
Shares of The New India Assurance Company Ltd was last trading in BSE at Rs.117.3 as compared to the previous close of Rs. 113.95. The total number of shares traded during the day was 88105 in over 2631 trades.
The stock hit an intraday high of Rs. 119 and intraday low of 110. The net turnover during the day was Rs. 10123709.