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Insurance value creation

Posted by fairval on November 1, 2009

Most investors companies in India are part of larger conglomerates. For ex, Aditya Birla Nuvo is the holding company for Birla Sunlife. Figuring what value to attach to the insurance business is often a tough task for the lay investor.

Here’s some info from a recent I Sec report. There are 2 bits of data – value estimation of a few companies and a graph which shows how much total capital has been invested in the business.

The first table shows values created. For ex, I Sec calculates that I-Pru is worth about Rs 32,000 crore and HDFC Standard Life is worth a litte more than Rs 14,000 crore.

The following chart shows capital invested. For ex, I-Pru has invested almost Rs 5000 crore, while HDFC Standard Life seems to have invested around Rs 1500 crore.

So the key part is this. For I Pru, the capital invested has multiplied about 6-7x. For HDFC, it seems to have gone up by maybe 9x. SBI has done better than most, Rs 1 invested by the parent is perhaps Rs 20 now, since it has leveraged its distribution network.
Of course, for a new entrant, these multipliers wont work. The companies mentioned here have been in the business for about 9-10 years now.


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