Category Archive : Sector Analysis

Insurance Sector

India’s Insurance Sector Analysis – Share Review

Best Multibagger Insurance Company Stocks for Decades

Introduction

In this article, we are going to do Insurance Sector Analysis in detail. Indian Insurance Sector is having a lot of potential to grow in the near future. We have tried to analyze the insurance sector on a broader angle here.

A Detailed Stock Analysis By Invest Yadnya
A Detailed Stock Analysis By Invest Yadnya

Insurance Sector Analysis

The life insurance industry in India is regulated by the Insurance Regulatory and Development Authority of India (IRDAI). Twenty four Life Insurance companies are licensed to do Insurance Business in India. Out of these companies, Life Insurance Corporation Of India (LIC of India) is the only public sector company.

Here is a detailed analysis of the Indian Insurance Sector and which companies should you look at.

Key Statistics

  • Total Gross Premium Written for FY2018-19 was almost $100 Billion. Thus, the valuation of total premiums write (Life insurance + Non-life insurance) in India in FY2018-19 was around Rs.7 Lakh Crore.
  • If we compared it with Mutual Fund Industry, the total inflow in mutual fund industry is normally around Rs.1-1.5 Lakh Crore (that to in a good year). So, we can clearly get the growth potential of insurance sector in coming years.
  • Out of the total Rs.7 Lakh Crore premium in FY2018-19,
    1. 75% : Life Insurance Companies’ premium (Rs.5.25 Lakh Crore)
    2. 25% : Non-Life Insurance Companies’ premium (Rs.1.75 Lakh Crore)

Life Insurance Segment

% Share of Public and Private Sector in Life Insurance Segment
% Share of Public and Private Sector in Life Insurance Segment
  • If we take life insurance industry into consideration, public sector companies are contributing almost 66.2% in gross premium written. In this, LIC (Life Insurance Corporation of India) is a major contributor to public sector life insurance segment. That is, out total Rs.100 life insurance premium over the entire country, LIC is contributing Rs.66.2 in gross premium in FY2019. Also, in new-business premium contribution of Life Insurance is Rs.52.
  • Also, the shares of HDFC standard Life, SBI Life Insurance and ICICI Prudential Life Insurance are growing considerably. All private sector players are contributing 33.8% Life Insurance Segment in FY2019.
Insurance Penetration in India
  • Insurance Penetration rate indicates the level of development of insurance sector in a country. Penetration rate is measured as the ratio of premium underwritten in a particular year to the GDP.
  • Overall Insurance Penetration includes:
  • Life insurance penetration considers premiums from life insurance policies only as a percentage of GDP and
  • Non-life insurance penetration considers premium from other than life insurance policies like auto insurance, health insurance, etc. as a percentage of GDP
  • According to IRDAI’s annual report, India’s overall Insurance Penetration for FY2017-18 was at 3.69% of Premium as a % of GDP.
  • India’s Insurance penetration is one of the lowest across the world. (Developed Economy : USA – 7.14% , UK – 10.61%), (Emerging Economy : South Africa – 12.89%). Average of insurance premium across the developed economies as well as emerging economies is almost 6.09%.
  • So it is a very big opportunity for insurance sector in Indian economy, since we are 2% down compared with world average insurance penetration.
  • With the increase in India’s per capita income, insurance penetration is expected to see 50% growth by 2023. It indicates the prolonged earning visibility for insurance sector in coming future. As a result, the listed insurance players is going to enjoy the premium valuations hand-in-hand.
Premiums Market Share in First Year Life Insurance
Premiums Market Share in First Year Life Insurance (FY2019)
Premiums Market Share in First Year Life Insurance (FY2019)
  • In the above market share contribution, LIC is not yet listed company. But the next 3 private insurance players – HDFC Standard Life, SBI Life Insurance, ICICI Prudential Life Insurance all are listed companies.
  • A detailed analysis of the best Multibagger cis available on our website in stock subscription. Here, we have covered the analysis of almost all the listed insurance companies, be it general insurance or life insurance.

Non Life Insurance Segment

Growing Share of Private Sector in Non Life Insurance Segment
Growing Share of Private Sector in Non Life Insurance Segment
  • We can see how aggressively the private sector is growing in Non Life Insurance Segment.
  • Non life insurance products can be broadly categorized into the following product verticals : Motor insurance, Health insurance, Crop insurance, Fire insurance, Marine insurance and other insurance products.
Non-Life Insurance Gross Direct Premiums
Non-Life Insurance Gross Direct Premiums
Market Share of Major Companies in terms of Gross Direct Premium Collected
Market Share of Major Companies in terms of Gross Direct Premium Collected
  • Individual market share in terms of Gross Direct Premium Collected is shown above.
  • In Non Life Insurance segment, New India Assurance is the largest general insurance company in India in terms of net worth, domestic gross direct premium, profit after tax and number of branches.
  • ICICI Lombard general insurance is the second highest listed non life insurance player in terms of gross direct premium collected. The detailed analysis of ICICI Lombard general insurance is also available in our stock subscription.
  • United India Insurance, The Oriental Insurance Company, National Insurance Company and Bajaj Allianze General Insurance are also having a significant market share in terms of gross direct premium collected.

Conclusion

  • In accordance with the future growth potential , the listed players in the Insurance sector can be a good investment bet for the retail investors.
  • Best Multibagger Insurance Company Stocks are given below. You should keep the following 4 stocks on your radar :
    1. SBI Life Insurance,
    2. HDFC Standard Life Insurance,
    3. ICICI Prudential Life Insurance and
    4. Lombard General Life Insurance.
  • These companies can add a good value to your portfolio. All the 4 stocks mentioned above are covered in our detailed stock analysis vedios as well as eBooks.
Analysis of Indian retail sector

Retail Sector in India – 3 Point Analysis

Indian Retail Sector Analysis

Introduction

In this article, we are going to do a detailed analysis of retail sector in India. Indian Retail sector has gone through a considerable change in size, scope and complexity of retailing over the last two decades.

Analysis of Retail Sector in India

Analysis of Retail Sector in India
Analysis of Retail Sector in India

1.Current Outlook

  • Key Growth Drivers : Indian Retail sector has emerged as one of the most dynamic and fast-growing sectors due to entry of several new players in the recent times along with rising income levels, growing aspirations, favourable demographics and easy credit availability.
  • GDP Contribution : Retail sector contributes almost 10% of the India’s Gross Domestic Product (GDP). According to the latest numbers, current GDP of India is around $2.5 Trillion. So, its 10% contribution means, almost $250 Billion are contributed from this sector per annum.
  • Employment Contribution : As far as total emplyment in the country is considered, around 8% of the total employment is contributed by retail sector. So, we can clearly have an idea that this sector is very important for Indian economy in current scenario.
  • Valuation : The current total valuation of the retail sector is almost $900 Billion, which includes unorganised, organised and E-Tail. Still very few retail players are listed.
  • Globally, India is fourth-largest global destination in the retail space after US, China and Japan.
Contribution of 3 heads to Total Retail Market in India
  1. Unorganised Retail : Currently, the Indian retail market continues to be dominated by the unorganised retail (traditional kirana stores) accounting for about 88% of the total retail market.
  2. Organised Retail : On the otherhand, organised retail like Big Bazar, D’Mart, Malls, Showrooms etc, is contributing only about 9% of the total retail market.
  3. E-Tail : E-Tail like Flipcart, Amazon, Big Basket etc, accounts for only 3% of the total retail market in India.
Stock Market Analysis by Invest Yadnya
Stock Market Analysis by Invest Yadnya

2.Segment-wise Revenue Mix in Organised Retail

Segment-wise Contribution in Organized Retail
Segment-wise Contribution in Organized Retail
  • Within organized retail, food & beverage holds around 65% of the revenue.
  • While apparel and footwear contributions is 10%. We have covered detailed analysis of Bata and Relaxo in our stock analysis for stock subscribers.
  • Consumer Durables and Jewellery & accessories are contributing 9% and 7% respectively.
  • Health & Entertainment, Home Décor & Furnishings, Beauty & Personal Care contribute around 4%, 3% and 2% respectiely to the otal organised retail market.

3.Future Growth

  • India’s organised retail penetration is much lower compared with other countries, such as the United States which has organised retail sector penetration of 85%. This can indicate the scope of the future growth of the organised retail in India.
  • Also, according to the government’s expectation, overall indian retail sector is expected to grow around 9-10% every year for the next 5 years. The valuation of Indian Retail sector is estimated to reach up to $1.15 Trillion in next 2 years, according to the Ministry of Commerce.
  • The Indian retail sector will be able to achieve the above mentioned growth of 9-10% per annum, through the expansion of organised retail only. That is the reason why big retail players like Avenue Supermarts, Reliance retail is expected to be at a much premium valuation.
  • With the improvement in the market share of total organised and E-Tail, the overall retail sector can attain the 9-10% growth and thus, reach to the projected numbers in next 2-3 years.
  • Organised Retail’s contribution to the overall Indian retail is expected to improve to 12-15% from 9% currently.
  • The proprietors (unorganised retail) tend have the inertia to resist for the changes like implementation of GST Law etc. While the businessman (organised retail) try to adopt the changes as early as possible so as to take the first mover advantage. Also, with the availabilty of advanced technology, talent pool etc the operational efficiency in the organised retail players can be improved considerably. Thus, higher double digit numbers can be achieved by organised players for their overall profitability and net profits growth.
  • So, for the same reason, organised retail players like Avenue Supertmarts, Reliance Retail through Reliance Industries, Future Retail are the stocks with a very positive growth path in future.

Conclusion

  • Thus, with the expansion in the market share of organised retail, Indian Retail sector will achieve the estimated projections in next 2-3 years.
  • Improving economy, changing demographic profile, increasing disposable incomes in hands of the middle class, brand awareness and growing urbanization along with rising discretionary spends are the main growth drivers in the organized retail market in India.
Analysis of Indian Cement Sector

Analysis of Indian Cement Sector

Opportunities in Indian Cement Sector

Introduction

In this article, we are going to analyse the Indian Cement Sector. The opportunities in infrastructure and thereby in cement sector have multiplied after declaration of the Budget 2019-20.

Government has a focused the Infrastructure growth (roads and railways), Metro stations, ‘Housing for All’ scheme, Industrial as well Rural Development etc. in the Budget 2019-20. Therefore, the cement sector can get a direct advantage of these various types of infrastructure developments.

Analysis of Indian Cement Sector

We are going to discuss the parameters like production capacity, consumption pattern, also what are the reasons behind the opportunities and growth in the Indian Cement Sector in coming years.

Analysis of Indian Cement Sector
Analysis of Indian Cement Sector

A.Production Capacity

  • Let us see the current status of production capacity of the cement sector in India.
  • As far as overall world market is considered, China is the largest producer of cement. After China, India is the second largest cement producer. The total production capacity of India is 510 MTPA (Million Tonnes per Annum) and this production capacity can grow up to 550 MTPA by 2025 as per the current growth the corresponding demand.
  • When we consider the India’s last year’s consumption for FY2018-19, it was 328 MT, however the overall production for FY2018-19 was 337 MT. Thus, India’s cement sector is having a current production capacity of 510 MTPA ie. around 500MTPA, but the annual production is just 337 MTPA. Thus, Indian Cement Industry is currently working at 65%-70% of its annual production capacity.
  • Hence, we can say that after proposing a boost in the Infrastructure and overall development supported by the government as mentioned in the last weeks Budget 2019-20, Indian cement sector can utilise its 100% production capacity in near future. Thus, cement sector in India can enjoy this simultaneous demand and growth advantage surely for next 5 years. Since government have its full focus on the country’s economic and development activities.

B.Consumption Growth

  • The consumption growth for last 3 years is more than 4.3%, while the inflation of the cement prices have increased by 5%-6%.
  • Therefore, from overall revenue side, the Indian cement sector can grow at the rate of 10%-11%. This growth can go up to 12%-15% with if the Indian cement sector players execute the aggressiveness in their business strategies for improving the operational efficiency.
  • India’s top 20 cement companies contribute to the 70% of the overall Indian cement sector annual capacity of 510 MT. Thus, these top 20 players are producing almost 350 MT. As far geographical positioning of the sector is concerned, the production capacity is higher in Rajasthan and southern Indian states than west and east states.

Let us see which are the 4 big opportunities for Indian Cement Sector

1.Smart City Initiative

  • Under the ‘Smart City Initiative’ by the government, 100 cities are proposed under this project and the number of cities covered is further going to increase in future.
  • Thus, this Smart City Project will offer a great demand for the Indian cement sector.

2.’Housing For All’

  • As per the government’s vision under ‘Housing for All’ scheme, every Indian should have at least one home by 2022. This is also a great opportunity in the real estate sector. And with the development of real estate sector, the basic raw material required ie. cement is also going to grow at the equal pace.
  • Almost 65% of the demand in the cement sector comes from Housing and Real Estate Sector. So we can understand how the cement sector can get a direct boost from real estate and housing sector.

3.Infrastructure & Industrial Development

  • As far as the current progress of roads, railways and metro infrastructure development is concerned, almost 20% of the cement consumption is from public infrastructure.
  • Thus, we can see (Housing + Infrastructure Development), togetherly contribute 85% of the cement consumption. And the remaining 15% consumption of cement is from Industrial development.

4.Per Capita Consumption

  • According to the survey done for different countries, it is seen that cement sector can grow at the rate of around 1.2 times the GDP growth of that country.
  • If we consider the capita consumption of cement in a developing countries, it is around 210 Kg, while overall world average per capita consumption is around 580 kg. Therefore, in proportion to the future economic and development growth, the per capita consumption of cement in India can grow from 210Kg to 580 Kg.
  • This is also a very good signal for the future growth and opportunities for the cement sector in India.
Analysis of Indian Pharma Sector – 5 Key Challenges

Detailed Analysis of Indian Pharma Sector

Problems With Indian Pharmaceutical Sector

Introduction

In this article, we are going to do a detailed analysis of Indian Pharma Sector. What is the current market size of Indian Pharmaceucital sector, what are the types and speciality of drugs manufactured in India and the exports etc. Also lets see what are the problems Pharma sector is currently going through.

India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers who have the potential to steer the industry ahead to an even higher level.

If everything else is positive, what is the real problem with the Pharma Industry in India?

Detailed Analysis of Indian Pharma Sector

Current Outlook of Pharma Industry – Indian vs Global

  • Size of Indian Pharmaceutical Sector = $50 Billion ie. close to Rs.3.25 Lakh Crore
  • Out of the total market size of $50 Billion, the Export market for Indian Pharma industry is around $17 Billion. In terms of Indian Rupees, it is approximately Rs.1.2 Lakh Crore.
  • As far as the global market is concerned, India manufactures around 20% of the total drugs manufactured all over the world according to the volume (not by size). India stands at 3rd position globally by volume. But, when we consider the ranking in terms of value, Indian Pharmaceutical market is at 10th rank.
  • Overall Global market is more than $1.2 Trillion and currently India is contributing around 3%-4% in the global market. Thus, we can see that there is a big opportunity for India to grow in the overall global footprint.

Then what is the problem with Indian Pharmaceutical Industry?

Problems With Indian Pharmaceutical Sector

  • Pharma sector in India is largely dependent on the Generic drugs. What are the generic drugs?
  • Pharmaceutical companies usually focus on R&D and files the patents for the developed solutions. After filing the patents, the respective company enjoys the production rights of the developed drug/solution for 20 years. No other company can produce the same drug in that 20 years span.
  • But once the duration of 20 years is completed, the patent will get expired and the generic companies comes into the picture. These generic companies can manufacture those drugs at a comparatively much lower costs with a considerably lower profitability. These drugs are known as ‘Generic Drugs’.
  • And the main problem with Pharmaceutical industry in India, that Indian pharma companies mainly focus on manufacturing the generic drugs only. The Indian companies generally don’t allocate/spends much funds for R&D domain as well as generating the Patents etc. This is the general development trend of generic business in Indian pharma companies.

Generic Drug Market

  • India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in UK.
  • Almost 50% of the total $17 Billion exports from India is going to the US market. Total generic drug market of US is around $80 Billion. And India’s contribution by value is almost $8 Billion and 30% by volume in US generic drug market. So we can see the dependency of Indian Pharma sector on the US.

5 Key Challenges for Indian Pharmaceutical Sector

Detailed Analysis of Indian Pharma Sector - 5 Key Challenges
Detailed Analysis of Indian Pharma Sector – 5 Key Challenges
Pressure of USFDA Actions on Indian Pharmaceutical Industry
  • US Health Regulator – US Food and Drug Admiinistration (USFDA) is conducting the inspectaions of manufacturing plants of Pharma sector companies in India.
  • And from last 2-3 years USFDA has given a lot of observations / negative commets in the audit conducted at the Indian Pharmaceutical manufacturing facility. Also, a lot of actions has been taken by USFDA.
  • USFDA will not give the license to the Indian manufacturing facility for the further new production until and unless all its conditions is not fulfilled by these Indian Pharmaceutical companies.
  • Many Indian Pharma companies like Sun Pharma, Lupin, Cipla has faced such problems because of the number of faults found out in the quality checks performed by USFDA.
  • Thus, Indian Pharmaceutical Industry is suffering from this pressure of actions taken by USFDA.
Government’s COntrol on Pricing
  • Government has a lot of focus on Healthcare sector. Pricing control is a very important factor in the process of making of the reforms by the government.
  • The same thing was executed by the government earlier in the Realty sector. These steps are right from government’s point of view. But, from the investors’ point of view, these pricing control majors taken by government may affect adversely to the investors’ profit margins.
  • Government has already priced down the generic drugs and increased the generic drugs’ promotion.
Fake Products
  • In rural sectors, a lot fake products are manufactured by small companies.
  • Or without any inspection, these companies set up their plants to manufacture similar kind of fake drugs by using the same compositions as that of original drug. So, it will create an indirect competition for the main pharma company which results into the reduced sales.
Lack of Human Resource
  • There is a scarcity of trained human resource required by the Pharmaceutical sector in India currently.
  • The quality of Medical Representatives (MRs) of the pharma companies has deteriorated according to the feedbacks given by the doctors as well as professional medical practitioners.
  • Many pharma companies has been employing a cost-cutting strategy for the training given to these MRs. As a result, the quality of human resource in Indian pharma companies is deteriorating and it is affecting directly to the sales numbers of the pharma companies.
Health Insurance Problem – In-Patient & Out-Patient
  • Health insurance policies covers only those medical bills for which hospitalisation of the patient is there.
  • Medical bill’s settlement is being proceeded only for the hospitalised patients, otherwise these health insurance companies don’t execute the settlement of bills for OPDs and other such medical services.It is also one of the key challenge to the pharma sector in India.
  • In future, if such health insurance policies covering full medical bill settlement without hospitalisation come, then it would be beneficial for the Indian Pharma industry.

Conclusion

  • Due to the above 5 key challenges the visibility of earnings or earnings’ growth is not much for Pharma Sector in India.
  • For the same reason, institutional investors are also not that much confident about Pharmaceutical industry and thereby Indian Pharmaceutical Sector.
  • Therefore, retail investors should also avoid pharmaceutical sector in their portfolio until and unless the above challenges/problems are solved.
Housing Finance Companies in India

Review of 6 Housing Finance Companies in India

Outlook on Housing Finance Industry

What are the best housing finance companies to invest? Let us see the top performing companies in housing finance industry and also the recent outlook on Housing Finance Industry in India.

The NBFC (Non-Banking Financial Company) crisis in India has made noticeable the funding and low equity capitalisation issues of the housing finance company(HFC) sector. In the last 6-9 months a lot of things have happened in the housing loans industry. Companies like DHFL and Indiabulls Housing Finance faced seen huge losses in terms of business as well as market share. As a result of the asset-liability mismatch in these companies. They had to sell their good assets to other housing finance companies.

So, which are the other companies which can be benefited from this and can accommodate the market share lost by these companies?

 Review of Housing Finance Companies in India
Review of Housing Finance Companies in India

Top Housing Finance Companies To Be Benefited

1. HDFC Ltd

  • This is the biggest housing finance company as of right now, in terms of market share or overall housing finance book. It has highest market capitalisation of Rs.3,76,119.60 Cr, among all other housing finance companies.
  • HDFC Ltd has given out housing loans worth Rs. 4.28 lakh Cr.
  • SBI has a home loan market of around Rs. 4 lakh Cr. (SBI is not a housing finance company, but this data has only mentioned for the sake of comparison) One can understand that, even with SBI being such a huge bank, HDFC Ltd has more penetration and a stronger brand value.
  • HDFC Ltd can now even enter in to the affordable housing finance market as a result of the merger of its subsidiary Gruh Finance with Bandhan Bank. Thus, HDFC can now aggressively push its affordable housing schemes.
  • Also, with the help of Housing For All scheme launched by the government, HDFC Ltd can benefit a lot from it.

2. LIC Housing Finance Ltd

  • LIC Housing Finance Ltd. is one of the leading companies in housing finance industry.
  • It has market capitalisation of Rs.27,178 Cr.
  • Housing loans given out by LIC Housing Finance are worth Rs. 1.95 lakh Cr.

3. BajaJ Finance Ltd

  • The housing finance arm of Bajaj finance Ltd is among the emerging housing finance companies. It is vey aggressively trying to gain market share in the housing finance industry.
  • Market capitalization of Bajaj Finance is Rs.205,259.35 Cr.
  • The company has exceptional fundamentals. It also has a great track record of performance as well as an excellent growth outlook going forward.
  • For the detailed stock analysis, Please refer our article : Why Bajaj Finance Stock Looks Attractive?

6. Piramal Capital & Housing Finance Ltd

  • Piramal Capital & Housing Finance (PCHF) is a wholly owned subsidiary of Piramal Enterprises Limited (the flagship company of Piramal Group).
  • This company has gained a lot of recognition in the recent times. It is making very aggressive efforts to make their hold in this housing finance industry.
  • Loan book of the Piramal Housing Finance segment grew to Rs.5,188 Cr in FY2019 from Rs.1,210 Cr in FY2018. Thus, a prominent growth of 3.28 times year-on-year seen in its loan book, indicates its aggressiveness in the expansion strategies.

Other HOUSING FINANCE COMPANIES

DHFL and Indiabulls Housing Finance Companies were among the top 5 housing finance companies earlier. But, due to the Asset-Liability mismatch issue, market share of these two companies has been impacted adversely.

1.DHFL

  • Everyone knows the things that are going around DHFL. The company has been in the news continuously, and for negative reasons only. It is not being able to each deadline. The company was not even able to repay the loans that it had taken which maturities in June 2019.
  • The Q4FY19 results have been declared yet. The loan book of DHFL as on Q3FY19 stood at Rs. 1.26 lakh Cr. There are rumours in the market that this loan book amount has now gone below Rs. 0.90 lakh Cr.

2. Indiabulls Housing Finance Ltd

  • Indiabulls Housing Finance Ltd has also been in the new recently for the reason similar to DHFL.
  • As per the Q4FY19 results declared by the company, a loan of just Rs.0.92 lakh Cr is remaining with them. This amount at a certain point had reached around Rs.1.3-1.4 lakh Cr.
  • The company has experienced a loss of close to Rs. 40,000-50,000 Cr in their market in home loans disbursements. They had to face all these problems because of their asset liability mismatch.

Summary

  • HDFC Ltd and LIC Housing Finance Ltd are the 2 major players in the Housing Finance industry, which remained undeterred during the asset-liability mismatch problems faced by housing finance companies.
  • DHFL and Indiabulls HFL had asset liability mismatches because they raised short term money and lent long term money. So, when the maturities of short term loans taken by them were due, they were not able to repay them as they had given out that money for longer period of time.
  • Thus, after this asset liability mismatch the 2 companies had to sell their assets (loans given out) to the other housing finance companies.
  • The market share of home loan disbursement lost by DHFL and IHFL was acquired by HDFC Ltd and LIC HFL. These 2 companies are the clear winner in this situation.
  • Amongst the new players, Baja Finance (housing finance arm) and Piramal HFL are the 2 companies which are performing very well and trying to gain market shares.
  • All in all, HDFC Ltd is the clear winner among all the existing housing finance companies as they have the aggressiveness to grow their business, the cashflow support needed to grow, experience, brand name and the backing of the HDFC group.

Notes: –

  • The numbers that are used are approximate and have been rounded for presentation purposes.
  • We are not in any way saying that these are bad companies or that the stock of these companies are bad.
  • We are also not suggesting anyone to immediately go and buy the stocks or invest in the stock markets.
  • Only an analysis has been presented here. No judgments or final statements are being made here.

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