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22 July 2020 HSIE Results Daily
HSIE Results Daily
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Contents
Results Review
Axis Bank: We maintain a BUY on Axis Bank with a target price of Rs 565.
We have slightly reduced our earnings estimates, as we build slower loan
growth, lower NIMs, and slightly higher provisions. Improved risk practices
(post CEO change), a strong balance sheet (CRAR ~17.5%, PCR ~75%), and a
strong liability franchise will hold the bank in good stead. Our constructive
stance on AXSB ties in with our broad thesis that large private banks with
strong balance sheets and deposit franchises will emerge stronger.
Hindustan Unilever: HUL clocked revenue growth of 4% YoY, primarily
led by the GSK acquisition. Its domestic consumer business (ex-GSK) saw a
decline of 7% YoY. Growth in the Hygiene & Nutrition business (80% mix)
was resilient at 6% YoY, while discretionary (15% mix)/OOH (5% mix)
declined by 45/69% YoY. Gross margin dipped 222bps YoY, despite GSK
being GM accretive and soft crude basket. However, cost management
initiatives supported the EBITDA margin. The company saw sequential
improvement in demand in May and June, but overall sentiment remains
weak on account of job losses and return of lockdowns in several states. The
Discretionary and OOH categories are expected to remain weak in FY21. We
maintain our below-consensus EPS estimate for FY21/FY22/FY23. We value
HUL at 50x P/E on Jun-22E EPS and derive a target price of Rs 2,016.
Maintain REDUCE on a muted absolute growth trajectory and unfavourable
risk-reward.
ICICI Prudential Life: We like IPRU’s re-engineered business model, which
is focused on a more diversified product mix (increasing PAR + NPAR)
along with an increased protection share. We, however, remain wary of the
current COVID-19 situation and believe that outlook for FY21E remains
challenged and build in a 16.3% decline in FY21E VNB; post which we
expect VNB to grow at FY21E-23E CAGR of 18.5%. In our opinion, a difficult
FY21E is most likely to delay achieving the goal of doubling VNB by FY23E.
We downgrade our rating on IPRU to REDUCE with a DCF-derived target
price of Rs 445 (Mar-21E EV + 23.6x Mar-22E VNB). The stock is currently
trading at FY21/22E P/EV of 2.5/2.2x and P/VNB of 30.2/23.3x. Key risks are
lower-than-expected growth, protection share or higher mortality as a result
of the pandemic.
SBI Life Insurance: Over FY21E we expect covid-19 and changes in personal
taxation to cause significant disruption to insurance sales (FY21E APE: -
13.1% YoY). We however take a longer term view on the business and
appreciate the strong distribution footprint of its parent SBI (24k+ branches),
improving protection share (1QFY21: 12.6%, +137bps YoY), lowest operating
cost ratios (1QFY21: 10.1%). We expect SBILIFE to deliver healthy FY20-23E
VNB CAGR of 6.6% and RoEVs of ~13.4-15.4% over FY21-23E. We retain our
BUY rating on SBILIFE with an unchanged TP of Rs 975 (Mar-21E EV + 28.9x
Mar-22E VNB). The stock is currently trading at FY21/22E P/EV of 2.8/2.5x
and P/VNB of 31.2/25.1x. Lower growth, renewals, and protection share are
key risks.
HSIE Research Team
Page | 2
HSIE Results Daily
Axis Bank
Conservatism hits earnings
We maintain a BUY on Axis Bank with a target price of Rs 565. We have
slightly reduced our earnings estimates, as we build slower loan growth,
lower NIMs, and slightly higher provisions. Improved risk practices (post
CEO change), a strong balance sheet (CRAR ~17.5%, PCR ~75%), and a strong
liability franchise will hold the bank in good stead. Our constructive stance
on AXSB ties in with our broad thesis that large private banks with strong
balance sheets and deposit franchises will emerge stronger.
1QFY21 highlights: NII and PPOP growth were healthy at 19.5% and 15.8%
respectively. PAT dipped 18.8% YoY to Rs 11.1bn. However, adjusted for the
net impact of changes in accounting policy (NII reserve, fee recognition and
provisions), PAT would have been Rs 16.3bn (+18.7% YoY).
Moratorium trends: Surprisingly, AXSB’s moratorium (by value) dipped to
9.7% of loans (25-28% of loans in 4QFY20). This sharp drop is encouraging
but odd. As per the management, borrowers representing 90% of the second
moratorium formed part of the first moratorium, and 70-80% of the
borrowers who had availed of the first one paid in June. The second
moratorium was subject to stricter conditions. Moratorium trends will be
keenly watched.
Asset quality: 21% of the gross slippages (1.6% ann.) were recognised as per
the bank’s credit and risk assessment criteria (technically not NPAs). 77% of
corporate slippages were from the BB and below rated pool of loans. The
pool itself shrank 14.4/1.7% to Rs 64.2bn (1.1% of loans). Downgrades into
the pool were Rs 13.3bn. We factor in slippages of ~3.3% over FY21-22E.
Provisions were 15.8% higher, led by a 21.7% growth in LLPs to Rs 35.1bn.
AXSB made COVID-19 related provisions of Rs 7.3bn in 1Q (total stock Rs
37.3bn). PCR increased 576bps QoQ to 74.8%. We build in elevated LLPs at
1.93% over FY21-22E.
Financial summary YE Mar
(Rs bn)
1Q
FY21
1Q
FY20
YoY
(%)
4Q
FY20
QoQ
(%) FY19 FY20 FY21E FY22E
NII 69.9 58.4 19.5% 68.1 2.6% 217.1 252.1 261.3 300.6
PPOP 58.4 58.9 -0.8% 58.5 -0.1% 190.1 234.4 245.7 279.9
PAT 11.1 13.7 -18.8% (13.9) -180.1% 46.8 16.3 87.9 121.9
EPS (Rs) 3.9 5.2 -24.6% (4.9) -180.1% 18.2 5.8 31.1 43.2
ROAE (%)
7.2 2.1 9.8 12.2
ROAA (%)
0.63 0.19 0.93 1.18
ABVPS (Rs)
215 268 291 344
P/ABV (x)
1.97 1.57 1.45 1.21
P/E (x) 23.4 73.2 13.5 9.7
Change in estimates
Rs bn FY21E FY22E
Old New Change Old New Change
Loan 6,329 6,234 -1.5% 7,227 7,178 -0.7%
NIM (%) 3.4 3.3 -2 bps 3.4 3.4 -1 bps
NII 262.6 261.3 -0.5% 302.7 300.6 -0.7%
PPOP 247.5 245.7 -0.7% 281.3 279.9 -0.5%
PAT 92.8 87.9 -5.3% 122.8 121.9 -0.8%
LLP (bps) 2.0 2.1 10 bps 1.7 1.7 2 bps
ABVPS (Rs) 292 291 -0.7% 341 344 1.0%
Source: Bank, HSIE Research
BUY
CMP (as on 21 July 2020) Rs 446
Target Price Rs 565
NIFTY 11,162
KEY
CHANGES OLD NEW
Rating BUY BUY
Price Target Rs 565 Rs 565
EPS % FY21E FY22E
-5.3 -0.8
KEY STOCK DATA
Bloomberg code AXSB IN
No. of Shares (mn) 2,822
MCap (Rs bn) / ($ mn) 1,259/16,873
6m avg traded value (Rs mn) 14,295
52 Week high / low Rs 766/285
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) 6.1 (37.8) (38.8)
Relative (%) (17.7) (29.6) (37.8)
SHAREHOLDING PATTERN (%)
Mar-20 Jun-20
Promoters 16.0 16.0
FIs & Local MFs 22.8 22.3
FPIs 45.6 46.0
Public & Others 15.6 15.7
Pledged Shares 0.0 0.0
Source : BSE
Pledged shares as % of total shares
Darpin Shah
+91-22-6171-7328
Aakash Dattani
+91-22-6171-7337
Punit Bahlani
+91-22-6171-7354
Page | 3
HSIE Results Daily
Hindustan Unilever
In-line result; margins disappoint
HUL clocked revenue growth of 4% YoY, primarily led by the GSK
acquisition. Its domestic consumer business (ex-GSK) saw a decline of 7%
YoY. Growth in the Hygiene & Nutrition business (80% mix) was resilient at
6% YoY, while discretionary (15% mix)/OOH (5% mix) declined by 45/69%
YoY. Gross margin dipped 222bps YoY, despite GSK being GM accretive and
soft crude basket. However, cost management initiatives supported the
EBITDA margin. The company saw sequential improvement in demand in
May and June, but overall sentiment remains weak on account of job losses
and return of lockdowns in several states. The Discretionary and OOH
categories are expected to remain weak in FY21. We maintain our below-
consensus EPS estimate for FY21/FY22/FY23. We value HUL at 50x P/E on Jun-
22E EPS and derive a target price of Rs 2,016. Maintain REDUCE on a muted
absolute growth trajectory and unfavourable risk-reward.
▪ Slight revenue beat: Revenue grew by 4% YoY (+7% in 1QFY20 and -9% in
4QFY20) vs the estimate of +1% YoY. LTL domestic consumer business (ex-
GSK) saw sales dip by 7% YoY (vs our estimate of 9% YoY decline) due to an
8% YoY volume decline. Home Care/PC witnessed a revenue decline of
2/12% YoY, while F&R grew by 51% YoY. Ex-GSK, F&R declined 4% YoY.
GSK saw 5% YoY growth.
▪ Weak gross margin, in-line EBITDA margin: The gross margin dip of
222bps YoY (flat in 1QFY20 and +142bps in 4QFY20) was higher than our
expectation (+96 bps, on account of adverse product mix and raw material
inflation. Employee/other expenses grew 31/19% YoY while A&P dipped
31% YoY, leading to the overall EBITDA remaining flat YoY (+18% in
1QFY20 and -11% in 4QFY20), in line with our estimates. EBITDAM dipped
by 113bps YoY. LTL EBITDA margin dipped by 170bps YoY. However, the
company saw a benefit of 60bps YoY from GSK. EBIT margins for Home
Care/PC dipped by 139/152bps YoY while F&R margin expanded by 24bps
YoY. Lower tax rate led to APAT growth of 7% YoY (+12% in 1QFY20 and -
2% in 4QFY20) vs estimate of +9% YoY.
Call takeaways: (1) Management is currently uncertain about sustainable
rural recovery; (2) Q1 Sales saw the benefit of ~6% distributor up-stocking
indicating weak consumer offtake; (3) the company saw 80% of the portfolio
gaining market share; (4) foods (organic) growth was in double digits; (5)
Capex plan for the next year remains unchanged.
Quarterly/Annual Financial summary
YE Mar (Rs mn) 1Q
FY21
1Q
FY20
YoY
(%)
4Q
FY20
QoQ
(%) FY20 FY21E FY22E FY23E
Net Sales 1,05,600 1,01,140 4.4 90,110 17.2 3,97,830 4,64,922 5,01,942 5,40,406
EBITDA 25,390 25,520 (0.5) 19,600 29.5 98,610 1,17,922 1,31,509 1,44,815
APAT 18,730 17,510 7.0 15,630 19.8 68,604 83,258 92,569 1,01,103
Diluted EPS (Rs) 8.0 8.1 (1.4) 7.2 10.4 31.7 35.4 39.4 43.0
P/E (x) 68.8 61.5 55.3 50.7
EV / EBITDA (x)
47.2 42.6 38.0 32.2
RoCE (%)
72.2 31.6 21.2 22.6
Source: Company, HSIE Research
REDUCE
CMP (as on 21 Jul 2020) Rs 2,317
Target Price Rs 2,016
NIFTY 11,162
KEY
CHANGES OLD NEW
Rating REDUCE REDUCE
Price Target Rs 2,016 Rs 2,016
EPS % FY21E FY22E
0% 0%
KEY STOCK DATA
Bloomberg code HUVR IN
No. of Shares (mn) 2,348
MCap (Rs bn) / ($ mn) 5,442/72,924
6m avg traded value (Rs mn) 11,548
52 Week high / low Rs 2,614/1,659
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) 0.0 12.8 34.7
Relative (%) (23.8) 21.0 35.8
SHAREHOLDING PATTERN (%)
Apr-20 June-20
Promoters 61.90 61.90
FIs & Local MFs 6.32 8.34
FPIs 12.04 14.81
Public & Others 19.74 14.95
Pledged Shares 0.00 0.00
Source : BSE
Pledged shares as % of total shares
Varun Lohchab
+91-22-6171-7334
Naveen Trivedi
+91-22-6171-7324
Aditya Sane
+91-22-6171-7336
Page | 4
HSIE Results Daily
ICICI Prudential Life
Protection aids margins
We like IPRU’s re-engineered business model, which is focused on a more
diversified product mix (increasing PAR + NPAR) along with an increased
protection share. We, however, remain wary of the current COVID-19
situation and believe that outlook for FY21E remains challenged and build in
a 16.3% decline in FY21E VNB; post which we expect VNB to grow at FY21E-
23E CAGR of 18.5%. In our opinion, a difficult FY21E is most likely to delay
achieving the goal of doubling VNB by FY23E. We downgrade our rating on
IPRU to REDUCE with a DCF-derived target price of Rs 445 (Mar-21E EV +
23.6x Mar-22E VNB). The stock is currently trading at FY21/22E P/EV of
2.5/2.2x and P/VNB of 30.2/23.3x. Key risks are lower-than-expected growth,
protection share or higher mortality as a result of the pandemic.
1QFY21 highlights: The lockdown and partial working conditions resulted
in total APE declining 44.0/58.3% YoY/QoQ to Rs 8.2bn. Protection share
increased to 26.0% (+1,140/820bps YoY/QoQ) as the individual savings
business saw a steep decline of 54.5% YoY. Both retail and group protection
held steady on a YoY basis while, within savings, the linked business was
down to 43.6% (-2,750bps YoY). Persistency deteriorated 50 to 440bps across
cohorts as a result of lockdown and partial working conditions. Renewal
premiums growth was weak at just 2.4% YoY. AUM growth was weak at
just 3.6% YoY to Rs 1.7tn, while solvency improved to 205% (+1100bps YoY).
Increased protection and non-linked savings share of 50.4% drove VNBM to
24.4% and VNB to Rs 2.0bn (-35.0/57.2% YoY/QoQ). The company stated that
increased reinsurance costs hit protection margins in 1QFY21, and would
improve 2QFY21 onwards as the company had repriced the product.
Management kept strong vigil on costs as costs/TWRP was contained at
8.8% (-250bps YoY). 1QFY21 PAT was at Rs 2.9bn (+0.7/60.3% YoY/QoQ).
Outlook: We expect FY21E to be a muted year as APE is expected to decline
18.7% YoY. Increased protection and non-linked business in the mix are
expected to drive VNBM to 22.4% (VNB of Rs 13.4bn, -16.3% YoY).
Quarterly financial summary
(Rs bn) 1Q
FY21
1Q
FY20
YoY
(%)
4Q
FY20
QoQ
(%) FY19 FY20 FY21E FY22E FY23E
NBP 16.1 22.9 -29.7 42.1 -61.8 103.6 124.9 107.9 125.1 146.4
APE 8.2 14.7 -44.0 19.7 -58.3 78.0 73.8 60.0 68.6 78.6
VNB 2.0 3.1 -51.5 4.7 -62.5 13.3 16.1 13.4 16.2 18.9
VNB Margin (%) 24.4 21.0 340bps 23.8 60bps 17.0 21.7 22.4 23.6 24.0
EV
216.2 230.3 258.9 293.1 330.1
P/EV (x)
2.9 2.8 2.5 2.2 1.9
P/VNB (x)
33.7 26.1 30.2 23.3 18.2
ROEV (%)
19.6 8.4 12.7 14.4 14.4
Source: Company, HSIE Research
Change in estimates
(Rs bn) FY21E
Revised
FY21E
Old
Change
% / bps
FY22E
Revised
FY22E
Old
Change
% / bps
APE 60.0 60.1 -0.2 68.6 68.5 0.1
VNB 13.4 14.5 -7.6 16.2 17.0 -4.7
VNB Margin (%) 22.4% 24.2% -180 23.6% 24.8% -120
EV 258.9 260.0 -0.4 293.1 295.1 -0.7
Source: Company, HSIE Research
REDUCE
CMP (as on 21 Jul 2020) Rs 443
Target Price Rs 445
NIFTY 11,162
KEY
CHANGES OLD NEW
Rating ADD REDUCE
Price Target Rs 460 Rs 445
VNB % FY21E FY22E
-7.6 -4.7
KEY STOCK DATA
Bloomberg code IPRU IN
No. of Shares (mn) 1,436
MCap (Rs bn) / ($ mn) 636/8,521
6m avg traded value (Rs mn) 1,347
52 Week high / low Rs 538/222
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) 19.6 (9.4) 16.7
Relative (%) (4.2) (1.2) 17.7
SHAREHOLDING PATTERN (%)
Mar-20 Jun-20
Promoters 75.0 73.5
FIs & Local MFs 5.5 5.2
FPIs 13.3 15.1
Public & Others 6.1 6.2
Pledged Shares 0.0 0.0
Source : BSE
Pledged shares as % of total shares
Madhukar Ladha, CFA
+91-22-6171-7323
Page | 5
HSIE Results Daily
SBI Life Insurance
In-line performance
Over FY21E we expect covid-19 and changes in personal taxation to cause
significant disruption to insurance sales (FY21E APE: -13.1% YoY). We
however take a longer term view on the business and appreciate the strong
distribution footprint of its parent SBI (24k+ branches), improving protection
share (1QFY21: 12.6%, +137bps YoY), lowest operating cost ratios (1QFY21:
10.1%). We expect SBILIFE to deliver healthy FY20-23E VNB CAGR of 6.6%
and RoEVs of ~13.4-15.4% over FY21-23E. We retain our BUY rating on
SBILIFE with an unchanged TP of Rs 975 (Mar-21E EV + 28.9x Mar-22E VNB).
The stock is currently trading at FY21/22E P/EV of 2.8/2.5x and P/VNB of
31.2/25.1x. Lower growth, renewals, and protection share are key risks.
1QFY21 highlights: Total APE at Rs 12.7bn declined 32.1/53.1% YoY as
lockdown and partial working conditions impacted sales. While share of
protection in total APE improved 137/79bps YoY/QoQ to 12.6%,
Retail/group protection declined 36.4/10.4% YoY/QoQ. ULIP declined 50.8%
YoY resulting in its share reducing to 48.0% (-1,828bps YoY) and consequent
improvement in non-linked savings business share to 26.8% (+966bps YoY).
Non-linked savings business grew 6.3% YoY with NPAR savings growing to
3.6x YoY.
Persistency deteriorated sequentially across all buckets except 61st month as
renewals lagged. Strong renewal premiums growth at 29.4% YoY to Rs
45.8bn and AUM growth of 19.3% YoY to Rs 1.8tn showcase high quality of
business underwritten. Solvency improved to 239% (+2,200bps YoY) as
equity markets bounced back.
Adj. VNB margin at 20.1% were higher by 20bps YoY but ~100bps lower
than our estimates. Margins were lower mainly due to 1) negative impact of
change in operating assumptions of (-120bps- largely due to re-insurance
price hike), 2) mix change (+620bps), and 3) change in economic
assumptions (-420bps, mainly risk free rate).
Outlook: We expect FY21E to be a challenging year for the SBILIFE. We
expect company to obtain approvals and launch newer high margin
products over 2QFY21 and hence improvement in metrics is more likely
over 2HFY21E. Overall we expect FY21E to be a muted year for the company
with FY21E APE/VNB expected to decline 13.1/11.7% YoY.
Quarterly financial summary
(Rs bn) 1Q
FY21
1Q
FY20
YoY
(%)
4Q
FY20
QoQ
(%) FY19 FY20 FY21E FY22E FY23E
NBP 30.5 31.6 -3.5 38 -19.7 137.9 165.9 160.3 182.4 219.8
APE 12.7 18.7 -32.1 27.1 -53.1 96.9 107.4 93.3 106.2 122.2
Adj. VNB 2.4 3.7 -31.4 5.8 -55.8 19.2 22.2 19.6 22.9 26.9
Adj. VNBM (%) 20.1 19.9 20bps 21.3 -120bps 19.8 20.7 21.0 21.6 22.0
EV
236.6 276.4 313.3 356.8 403.6
MCap/EV (x)
3.8 3.2 2.8 2.5 2.2
P/VNB (x)
35.8 29.4 31.2 25.1 19.8
ROEV (%)
18.9 16.8 13.4 15.1 15.4
Source: Company, HSIE Research
BUY
CMP (as on 21 Jul 2020) Rs 888
Target Price Rs 975
NIFTY 11,162
KEY
CHANGES OLD NEW
Rating BUY ADD
Price Target Rs 975 Rs 975
VNB % FY21E FY22E
Nil Nil
KEY STOCK DATA
Bloomberg code SBILIFE IN
No. of Shares (mn) 1,000
MCap (Rs bn) / ($ mn) 888/11,904
6m avg traded value (Rs mn) 1,179
52 Week high / low Rs 1,030/519
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) 32.3 (8.7) 19.3
Relative (%) 8.5 (0.5) 20.3
SHAREHOLDING PATTERN (%)
Mar-20 Jun-20
Promoters 62.8 60.7
FIs & Local MFs 5.7 7.0
FPIs 25.9 26.2
Public & Others 5.6 6.1
Pledged Shares 0.0 0.0
Source : BSE
Pledged shares as % of total shares
Madhukar Ladha, CFA
+91-22-6171-7323
Page | 6
HSIE Results Daily
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential
Disclosure:
Analyst Company Covered Qualification Any holding in the stock
Darpin Shah Axis Bank MBA NO
Aakash Dattani Axis Bank ACA NO
Punit Bahlani Axis Bank ACA NO
Varun Lohchab Hindustan Unilever PGDM NO
Naveen Trivedi Hindustan Unilever MBA NO
Aditya Sane Hindustan Unilever CA NO
Madhukar Ladha ICICI Prudential Life CFA NO
Madhukar Ladha SBI Life Insurance CFA NO
Page | 7
HSIE Results Daily
Disclosure:
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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.
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date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage
services or other advisory service in a merger or specific transaction in the normal course of business.
HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with
preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this
report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may
have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
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