Bajaj Allianz Life Insurance
Published on Wednesday, November 11th, 2009 at 12:26 PMAuthor: insightt95in (170 Articles)
Bajaj Allianz Life Insurance (BALIC)
(Per share value: Rs. 259)
Indian Life Insurance Industry – Moderation in APE
growth
Liberalization led to 30% CAGR (APE) over FY04-09: The life insurance sector
in India grew at an impressive rate of 30% CAGR over FY04-09. This growth was
driven by liberalization of the sector which led to the entry of private life insurers.
These private players contributed to the sector’s development by significantly
increasing product awareness, developing new products, educating the consumer
and establishing distribution channels across the country. Growth was the key
focus for private insurers which helped expand the market and led to strong
performance by the new private life insurers. Consequently, during this period life
insurance penetration in India went up from c.2.6% in 2004 to c.4.1% in 2009.
APE growth to moderate to 10% CAGR for the industry over FY09-13E:
Despite witnessing weak growth in FY09 due to global financial crisis and
consequent volatility in capital markets, we believe the long term growth drivers
for the Indian life insurance industry are intact. We expect 10% CAGR in new
business premiums (APE basis) over FY09-13E for the industry led by robust
economic growth, increasing allocation of financial saving towards life insurance,
favorable demographics and reasonably strong outlook for the equity markets. For
the private players, we expect 12% CAGR in new business premiums (APE basis)
over FY09-13E.
Valuation
We have used 2 techniques for valuing BALIC – a). Appraisal value based
valuation and b). DCF based valuation. We have arrived at a value of Rs157bn
for BALIC as per appraisal value method and Rs131bn as per DCF method, which is
lower by 17% as compared to appraisal method. We have factored in the average
of the values arrived at from these 2 methods to assign value of Rs144bn for BALIC
which amounts to a value of Rs259 per share for Bajaj Finserv assuming its
economic interest of 26% in the life venture.
a).Appraisal value based valuation
Appraisal value is defined as the sum of embedded value and Structural value.
Structural value is the present value of new business values into perpetuity. Using
this method (which is described in the valuation methodology section earlier in the
report), we arrive at a valuation of Rs157 bn for BALIC. This amounts to an
estimated Rs 283 per share for Bajaj Finserve assuming its economic interest of
26% in the life venture. We have used a NBAP multiple of 13x based on our growth
and margin expectations
BALIC -Valuations at c.40% discount to China Life and Ping An
In our opinion, BALIC’s value of Rs 144bn is reasonable when compared to listed
Chinese life insurers. At our valuation, BALIC would be trading at 13x FYE11E NBAP
while China Life Insurance and Ping An Insurance are currently trading at 25x and
20x FY11E NBAP which implies a discount of 48% and 35% to Chinese peers.
Similarly, on Price to EV multiple, BALIC would be trading at 20% and 12%
discount to China Life and Ping An respectively.
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