ICICI Pru Life is amongst mkt leader in private sector life insurance space’

Source: The Hitavada      Date: 08 Jul 2018 10:03:19



Q1. What’s the outlook on MM?

MM FES (farm equipment services) is <2 % of global farm equipment market of USD160b, hence sees immense opportunity to scale up in global markets. Target farmers with <50 ha land holdings in global markets. - Target 50 % market share in domestic tractors (v/s 43 % currently), driven by strengthening position in relatively weaker market by offering market/crop specific solution and targeting price conscious market through Trakstar brand. In the base case, India FES segment revenues can double in 6 years ( ~12 % CAGR). - Geographic expansion in target global markets to contribute ~50 % (v/s <40 % currently). - Aspiring farm mechanization to be USD1b consol FES revenues (v/s USD340m currently). At USD1b, MM’s global market share would be just 1 %.
In India, non-tractor farm mechanization revenues are just ~INR3b as against industry size of INR70b (v/s tractor market size of ~INR390b). Global farm equipment market is USD160b, of which tractors is just USD60b.

Q2. Is ICICI Prudential Life Insurance
well placed?

ICICI Prudential Life Insurance (IPRU) is amongst the market leader in the private sector life insurance space, aided by its strong brand, distribution capabilities and product portfolio. It has increased its market share in retail weighted premium to ~12% in FY18 (~6% in FY12) and has alongside reported sharp improvement in persistency ratios. This coupled with change in product mix in favor of protection business and strong cost control has enabled healthy margin expansion (16.5% VNB margin in FY18 v/s 10.1% in FY17). We expect margins to improve further to 18.2% by FY20E, boosting average operating RoEV to ~20% over FY18-20E. We value IPRU at INR480 per share using P/EV multiple of 2.7x (implied new business multiple of 21x). Initiate coverage with BUY.

Q3. What’s the call on SCUF?

ABOUT 18 months ago, post consultation with McKinsey, SCUF rolled out a standardized pattern of MSME loan sourcing across geographies. However, the management is waiting for one full cycle to complete (three years) before altering any credit cost guidance. In addition, this
new model is expected to help scale up the MSME loan book in non-South geographies. Currently, to prevent customer migration to competition after a loan cycle, the management has decided to reduce the interest rate for existing MSME borrowers by 200bp in the subsequent cycle. However, existing borrowers come with nearly nil incremental sourcing cost as well as lower probability of defaults. Sourcing activity generally happens from the 1 of the month. Incentives are paid to executives only if they disburse at least three loans per month. Branch managers can deviate from the output of the new sourcing model (the McKinsey model) provided they get an approval from their seniors.