Recent brokerage recommendations

In a dynamic market scenario, many stocks find themselves on the radar of brokerages, whose analysts do a detailed analysis on past performance as well as gauge the future potential. We track stocks that have been covered by brokerages over the last few weeks and what the key highlights of each report and the reasons for choosing these stocks are. This week we bring you highlights from two stocks covered by brokerage houses viz, SBI and HDFC Life.

State Bank of India

The State Bank of India (SBI) is one of India's largest state-owned financial organizations. The bank, headquartered in Mumbai, offers a diverse range of products and services to its customers, which include commercial firms, large corporations, public entities, and institutional clients. SBI is also one of India's top banks in terms of market capitalization.

Domestic treasury, brokering services, revised service costs, ATM services, online banking, E-pay, E-rail, safe deposit locker, MICR codes, foreign inward remittances, and doorstep banking services are among the services provided by the bank to its customers. SBI, a Fortune 500 corporation, is also one of the top 50 worldwide banks, with a balance sheet worth more than Rs 30 lakh crore.

Broker’s Call

CMP as on 22 July	Rs 517
Broker House	Motilal Oswal	Axis Securities
Report date	19-July-22	30-June-22
CMP on Report date	498	459
Target (INR)	600	665
Upside Potential	+20%	+45%

Motilal Oswal’s views on SBI

Gaining Market Share in Loans:

Over the last few years, the bank has gradually increased its loan market share.While PSU banks as a whole lost 1,130bp in loan market share over the last four years, SBIN stands out with a 90bp gain to 23%. In FY22, wholesale utilisation increased by 860 basis points to 31%, while retail growth remained stable at 15% YoY. Xpress Credit is the fastest growing retail lending segment, with a significant development runway.

RoE to surpass the 15% mark; predict 16.7% by FY24:

SBIN recorded a RoE of 13.9% in FY22, the highest since the start of AQR in FY16. It negotiated the tough phase of corporate asset quality from FY17 to FY19, which impacted profitability and return ratios. They believe that the majority of the corporate pain has passed. It has sufficient provisions on this portfolio and appears to be well-positioned to exceed the long-term trend of 15% RoE in FY23.

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Axis Securities’ views on SBI

Digital Strategy to Drive Growth

With a cashless economy accelerating digital transformation, SBI has developed significant digital capabilities to position itself at the forefront of digital-driven growth. SBI has developed an all-encompassing digital platform – "YONO" – with integrated goods and services to address the diverse banking and financial needs of customers in recent years. YONO is already expanding at a rapid pace, and they anticipate that it will play a significantly larger part in the bank's future growth as more people embrace and utilise the technology. SBI also established new capabilities in FY22, including a digital bank, financial superstore, YONO Krishi, e2e digitization, and YONO business.

Reasonable deposit growth with a greater proportion of CASA in the liability mix The bank's total deposit increased by 10.1% to Rs 40,51,534 Cr in FY22, mostly due to 11.5 % rise in Term Deposits. With the bank's focus on digital-driven growth, YONO accounted for 63 % savings accounts created in FY22. Despite a 5.4 % in current account deposits for the year, the bank managed to increase overall CASA by 8%.

Strongest Balance Sheet in past many years to support growth

Since FY18, the bank's asset quality and balance sheet strength have improved significantly. With more than 75% of its corporate loans in rating category A or higher, management has been diligent in maintaining the quality of its assets. On the retail front, more than 57 percent of its book is oriented toward the Home Loan, while unsecured Xpress credit (25 percent of the retail book) is primarily targeted at salaried government employees. This emphasis on asset quality aided the bank in improving the overall quality of the book while also increasing the granularity of the loan book.

HDFC Life Insurance Company

HDFC Life Insurance Company Limited is a partnership between HDFC Ltd., India's largest housing financing organisation, and abrdn plc (previously Standard Life Aberdeen plc), a worldwide investment firm.

HDFC Life, founded in 2000, is a leading insurance company in India, offering a variety of individual and group insurance products to fulfil a variety of customer needs such as Protection, Pension, Savings, Investment, Annuity, and Health. As of September 30, 2021, the Company's portfolio included 38 individual and 13 group packages, as well as 7 optional rider perks, catering to a wide range of consumer needs.

Broker’s Call

CMP today 08 July 22	Rs 536
Broker House	ICICI Direct	Motilal Oswal
Report date	20-July-22	19-July-22
CMP on Report date	536	536
Target (INR)	635	600
Upside Potential	+18%	+12%
Time Period	12 Months	12 Months

ICICI Direct’s View on HDFC Life Insurance Company

Q1FY23 Results: Healthy business growth

Overall, HDFC Life produced a good set of figures, with Gross Written Premium (GWP) increasing 22.7 % year on year to | 9396 crore, largely due to the base effect last year. The business was primarily driven by 29.8 % year on year growth in single premium and 18.8 % year on year growth in renewal premium. Premium increased by 22% year on year on an APE basis.

Valuation & View

The management team remains committed to maintaining a balanced product mix across all businesses, with a focus on product innovation and exceptional customer service. Non-PAR and Annuity are expected to expand strongly in the near term, while

Protection will gradually rebound through FY23. As momentum in Retail Term Insurance continues weak, Credit Life will lead growth in Protection. Due to a volatile financial market, demand for ULIPs remains weak. Persistence trends are stable and continue to support substantial renewal trends. They predict a VNB margin of 29%, allowing for a 26 % VNB CAGR over FY22-24.

Motilal Oswal’s View on HDFC Life Insurance Company

Growth in Revenue and Annual Premium Equivalent

Renewal revenue increased 19% year on year (YoY), boosted by an improved persistence percentage across cohorts. PAT increased by 21% year on year to INR3.7 billion (8 % beat). Individual/group APE increased by 19%/40% year on year, resulting in overall new business APE growth of 22%. Annuity climbed 42 % on year, while the PAR segment grew by 22%. Credit Life led protection growth of 30% YoY, while Retail Term Insurance remained under pressure.

Concall highlights

• Individual Protection demand is lagging due to Consumers' willingness and intention to purchase insurance, on the other hand, are unaffected. It anticipates Retail Term Insurance demand to return when inflation moderates in 2HFY23.
• Strong momentum witnessed in sales from non-HDFC bank partners: YES Bank, IDFC First Bank, and BANDHAN The decline in Enterprise Value (EV) is due to a payment of dividend and adverse economic variance.

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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