This is despite the market volatility and significant challenges faced by the insurance sector
Aviva Life Insurance announced a profit of Rs29 crore in FY2010-11, for the first year since launch of operations in May 2002, against a reported loss of Rs345 crore in the previous year. This is despite the market volatility and significant challenges faced by the sector. The company maintained total premium collected at par with previous year at Rs2,345 crore with total assets under management pegged at Rs7,654 crore.
TR Ramachandran, CEO & MD, Aviva India said, "Our business focus has been on sustainable and profitable growth driven by a quality led business model focused on bancassurance. The transition to profitability is a result of proactive steps taken to re-organise the product portfolio and continuous management focus on achieving higher productivity, improving persistency and strategic cost management."
The company has capitalised on the large opportunity in the protection and child segment and in the last FY, nearly 10% of business has been contributed by each of these segments. Aviva India introduced a complete suite of protection products, including its online term plan Aviva i-Life. Aviva India also launched seven traditional products and four unit-linked products in FY10-11.
The strong management focus towards resource optimisation and cost efficiencies led to a reduction of 20% in total operating expenses. The company's operating expenses to gross written premium ratio improved from 30% in FY09-10 to 24% in FY10-11.
Survey by the WHO and the World Bank points out that India has miles to go to ensure a life of dignity for the disabled
The World Report on Disability, compiled by the WHO (World Health Organization) and the World Bank, released on 10th June, shows that India has a long way to go to ensure welfare for citizens with disabilities. Despite being the home to a large number of people with disabilities, India has fared poorly in terms of rehabilitation of the disabled or for their education, healthcare and employment.
"In India, children with disabilities in special schools fall under the responsibility of the Ministry of Social Justice and Empowerment, while children in mainstream schools come under the Department of Education in the Ministry of Human Resource Development. This division reflects the cultural perception that children with disabilities are in need of welfare rather than equality of opportunity. This particular model tends to further segregate children with disabilities, and shifts the focus from education and achieving social and economic inclusion to treatment and social isolation," the report says.
The report defines 'disability' in a very wide sense, which also includes people who suffer from chronic health conditions, or undergone physical or mental trauma in an accident. "More than one billion people in the world live with some form of disability, of whom nearly 200 million experience considerable difficulties in functioning. Disability will be an even greater concern due to ageing populations and the higher risk of disability in older people as well as the global increase in chronic health conditions," says Dr Margaret Chan, director-general of the WHO and Robert B Zoellick, president of the World Bank Group in the preface to the report.
The apathy can be noticed in a variety of other ways too. In India, 42% of public buildings do not follow the compliance norms necessary to make public structures accessible to the disabled. With a high disability prevalence rate of 24.9%, India loses some10.5 years of health due to disability. During 2004-2005, only 0.05% of the budget allocated to the ministry concerned was reserved for welfare of people with disabilities. Access to healthcare is severely limited to many, due to high cost, lack of convenient transport and lack of services.
In matters of access to primary education, the share of disabled children not enrolled in school is more than five times the national rate. Even Karnataka, which has fared the best among Indian states, almost one-quarter of children with disabilities were out of school, and in states like Madhya Pradesh and Assam, the number increases to more than half.
Moreover, though as high as 60% of disabled children between 6-11 years attend school, the number drops to 30% for those between 12-17 years. Only 37.6% of the people with disabilities are employed—and 87% of them are in informal sectors.
According the 2001 Census, there are 21.90 million people with disabilities in India. However, a 2007 World Bank Report on disabled persons in India observed that there is growing evidence that people with disabilities comprise between 5%-8% of the Indian population (around 55- 90 million individuals).
However, India has shown significant improvement over the years, and the country has seen the movement for the support of the disabled gain significant ground. Many schemes have been implemented, and in many parts of India, the education and healthcare situation has improved. The Leprosy Mission's training centres have a job placement rate of more than 95%. The 2011 Census is supposed to be more 'disability-sensitive' and accurate, and the much awaited Persons with Disabilities Act, 2011 is to be implemented this year.
Big brokers are reluctantly lowering their earnings growth target, leading to the belief that the market is undervalued. Is it based on false premises?
Is the Indian market undervalued? This is the million-dollar question today. It is the inability of big investors to answer this question decisively that is leading to a sideways market with extraordinarily low volatility. The Sensex was around 18,300 in end-January. It is about the same today. Intraday volatility has dramatically collapsed. This is because the bulls are as confused as the bears and there is a complete stalemate.
Could the cause of this confusion be the propaganda of big brokers who are calling the market undervalued?
Their (bullish) argument is straightforward and is captured in a recent report of Kotak Securities. "The BSE30 is trading at 14.4X FY2012E EPS (full market cap basis) … Downside risks of earnings exist but they have somewhat receded with cuts during the recently concluded 4QFY11 results season. The nature of earnings precludes large cuts unless macro-conditions turn drastically negatively. We find the valuation of the Indian market reasonable after a 10% correction."
Well, this valuation exercise would have you believe that the market is a 'buy' at a forward P/E of 14+. That's fine—but surprise, surprise, nobody is buying. The market is listless for days (today, it went down sharply and came up again) and weeks and more importantly, every rally is being met with selling.
The most intriguing fact is that there are only a few occasions in the past when the forward P/E has been 14. On those occasions, long-term buyers have swooped in. So why not this time? Because the investors probably don't believe that the forward Sensex P/E is as low as 14, despite the bullish propaganda of brokerage houses. Neither do we, and here is the math.
In 2010, the Sensex companies probably recorded an earning per share (EPS) of Rs834. In FY11, a robust year of recovery, the EPS was probably Rs1,013 (it is hard to decipher these EPS figures because the BSE, the Bombay Stock Exchange, does not give them). Three months of FY12 are about to get over.
What would be the EPS of the Sensex in 2012 which would give us an idea whether the forward P/E of the Sensex is attractive or not at the current market level? Here is where confusion starts. The Bloomberg consensus estimate is Rs1,240. This assumes a rise in net profit of 22%. Is that a logical assumption, given that in a year when the skies were blue (FY11), the Sensex EPS rose by 21%. In fact, the March quarter performance of the Sensex companies was terrible.
According to the head of research of Motilal Oswal Securities, Rajat Rajgarhia, quoted in CNBC, "Even during the crisis of 2008-10, we never saw such a magnitude of variation in our actuals versus the estimates. (For) the quarter which went by, we had the Sensex earnings almost being flat versus an estimate of 17%-18% growth." One of the reasons for this was poor results of State Bank of India and ONGC—two heavyweights in the Sensex.
But, according to Mr Rajgarhia, "Even excluding these two numbers, the profit growth for the Sensex was just 8%-9%—which was very disappointing. At the end of this quarter, we saw a downgrade to the tune of almost 3%-4% to our FY12 earnings estimates. So, the revised estimates are just about at Rs1,200 for FY12."
Is that too optimistic? Not if you hear what broking companies are touting. Kotak Securities is hopeful enough that it is assuming an EPS of Rs1,210. The other estimates are even more bullish (those of Bank of America, Macquarie, and Citi cluster around Rs1,250). But even Rs1,200 of EPS assumes that the Sensex companies will grow their earnings by 18%-19%. Is this possible?
We trolled the research reports of several large brokerages and found only assumptions and forecasts—no logical build-up of credible arguments as to how growth will come back on its own. It seems merely a sunny extrapolation, wishful thinking.
We believe that given how badly Sensex companies have done in the March quarter without any plausible reason and warning, the writing is on the wall. To know whether the market is overvalued or not, we will have to work with pessimistic assumptions, not optimistic ones, something that that analysts as a tribe are always loath to do. If the Sensex companies record an EPS growth of 13%, we get an EPS of Rs1,150 for 2012. At the current Sensex level of 18,300, that means a P/E of 16. That is not expensive—but not cheap either, as the brokerages are making it out to be. And if the EPS growth is lower at 10% (not impossible), EPS will be Rs1,120. For the Sensex to sport an attractive forward P/E of 14, it will have to be around 16,000. You can make your own assumptions and tweak the numbers—but at least don't go by what brokerages are saying.