Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities
While NEP grew 13.7/4.0% YoY/QoQ (+1.5 vs. est.), higher-than-estimated loss ratios (+862bps vs. estimates) dragged underwriting profitability. We note that the company's competitive positioning is weakening and remain concerned about its ability to write profitable business. We have changed our estimates to build in higher loss ratios (as the economy further opens up) and slightly higher float income (given the buoyancy in equity markets). We estimate an FY23E adj. RoE of just 8.2% and can at best assign a valuation of just 0.6x Mar-23E ABV (less 10% discount for additional 10.4% supply). While we rate NIACL a SELL with a TP of INR 110, privatisation seems to be the only end game for the turnaround of this franchise.
4QFY21 highlights: NIACL printed NEP at INR 69.9bn (13.7/4.0% YoY/QoQ, +1.5% vs. estimates), broadly in line with our estimates. Fire grew at a robust pace (+11.0/37.2% YoY/QoQ), while motor segment was flattish sequentially. While NWP for crop grew 82% YoY/1.5x QoQ, ex. Crop, NWP grew 14/12% YoY/QoQ to INR 70.0bn. Loss ratios in motor OD/motor TP/ health shot up to 85.3/73.2/92.8% in FY21 vs. 64.0/63.0/74.0% in 1HFY21. This resulted in overall 4QFY21 CoR coming in 956bps above estimates at 123.8%.
Additional provisions on bad investments: Investment income (net of provisions) was at INR 21.9bn (+58.9/21.6% YoY/QoQ) while the company realised investment yield of 21.6%, most likely driven by booking equity gains. Additional provisions on investments in debentures of JSEL (an ILFS group subsidiary) for INR 482mn were made in 4QFY21. Total investment yield (including MTM) for the quarter was 43% (annualised), given strong equity market performance. Higher-than-estimated investment income, partially offset by higher underwriting losses, resulted in +0.7/-47.8% YoY/QoQ APAT of INR 3.3bn. RPAT clocked in at INR 2.3bn (+7.7/-7.1% YoY/QoQ).
Outlook: We expect FY22E to be a better year in terms of NEP growth (FY22E: 11% YoY) but we expect underwriting losses to inch up as the second wave normalises.
Shares of The New India Assurance Company Ltd was last trading in BSE at Rs.165.6 as compared to the previous close of Rs. 166.7. The total number of shares traded during the day was 24875 in over 858 trades.
The stock hit an intraday high of Rs. 169.25 and intraday low of 165.15. The net turnover during the day was Rs. 4158914.