Short Call | Insurance still an unloved sector; focus on Oberoi Realty, Doms, GSPL, Patel Engg

Tepid numbers for the March quarter could further deter bulls.

"Courage taught me no matter how bad a crisis gets... any sound investment will eventually pay off." - Carlos Slim Helu

One feels for insurance sector companies. Despite being one of the critical sectors of the economy, it is yet to catch the fancy of investors. Tepid numbers for the March quarter could further deter bulls, despite the stock market truism that big returns can be made only if you invest in times of distress.

A report by Kotak Institutional Equities points out that the non-life industry’s gross written premium moderated to 13 percent in FY2024 from 16 percent in FY2023, though it is higher than 5-11 percent reported in FY2019-22.

Excerpt from the report:

“Business composition has changed though, with health being the largest driver, likely reflecting increased focus, higher appetite and rising tariffs. Pick-up in new vehicle sales supported motor OD(own damage) growth in FY2024 (up 17% yoy); the rise in vehicle prices also augmented. Motor TP (third party insurance) growth was moderate at 10%, likely on a decline in renewal rates.”

Kotak is positive on the health opportunity in India, and is eyeing the developing competitive dynamics in the motor and commercial lines.

Antique is more bullish on life insurance companies as it feels that regulatory risks are receding and valuations are attractive

Oberoi Realty (Rs 1423, + 2%)

The company’s presales for the March quarter jumped 126 percent quarter-on-quarter and 164 percent year-on-year.

Bull argument: Sales in Mumbai, a stronghold of the company, continue to be strong. The company has a lean balance sheet, and is regarded has a

better corporate governance track record among peers.

Bear argument:  Too much concentration in Mumbai. Given the flood of redeveloped property hitting this market, big upside in property prices hereon look unlikely. Interest rates are expected to stay high near term; that could weigh on demand.

Gujarat State Petronet (Rs 304, 19%)

The stock plunged after the Piped and Natural Gas Regulatory Board slashed tariffs by 47 percent

Bear argument: The steep cut in tariffs will negative much of the upside likely to come from volume growth.

Bull argument: According to Nuvama, GSPL is a key beneficiary of additional LNG to be imported to bridge the demand-supply gap in India. Strong growth expected given visibility on volumes.

Doms Industries (Rs 1,830, +5.56%)

BNP Paribas initiated an 'outperform' rating with a target price of Rs 1,950 a share, 15 percent higher than the current market price.

Bull argument: Dominant player in the Rs 38,500 crore Indian stationery market. Company has a strong parent in Italy’s FILA, a well established distribution network, strong brand recall and well planned capacity expansion programme.

Bear argument: The stock is trading at 115 times trailing 12 month earnings.

Persistent Systems (Rs 3,510, - 9.65%)

The stock fell over 9 percent after the company gave a flat margin guidance for FY25 as a part of its Q4 results.

Bull argument: PAT and revenue for the quarter were mostly in-line with guidance; management remains confident of growth in FY25E and most analysts continue to remain positive on the stock.

Bear argument: Cautious view on the IT sector has a whole could limit upsides.

Patel Engineering (Rs 62.75, +6%)

ICICI Securities has initiated coverage on Patel Engineering. The company is raising Rs 500 crore through a qualified institutional placement

Bull argument: A strong order book of Rs 19,134 crore. The company is set to receive order inflows of Rs 6000 crore and Rs 10,000 crore in FY25 and FY26, respectively, says ICICI Securities. In the near term, it has guided for receipt of Rs 150-200 crore from the arbitration claim awards.

Bear argument: The company's promoters have pledged almost 88 percent of their holding.

(With inputs from Srushti, Ananthu and Anishaa)