HDFC Life Insurance Company share price has rallied over 3 per cent so far in September
HDFC Life Insurance Company share price has rallied over 3 per cent so far in September. Last week, HDFC Life Insurance Company announced the acquisition of Exide Life Insurance Company for Rs 6,687 crore. HDFC Life is among the most dominant players in the Indian life insurance industry with a healthy distribution network. Analysts see nearly 20 per cent rally in HDFC Life Insurance Company stock price from Monday’s close. On Monday, the stock surged to a day’s high of 743.25 and fell to a low of Rs 728.80 apiece. At least three brokerage and research firms have recommended to ‘buy’ the stock.
ICICI direct Research
Rating: Buy, Target: Rs 850 Upside: 15.6%
The domestic research firm believes that with the acquisition of Exide Life, expansion in terms of geography (tier II and III regions), customers and distribution (agency channel) remains positive. Pre-overrun margin similar to HDFC Life is positive, though the focus will be on improving cost matrix and persistency, it said. Given low market share, flattish business and low persistency, cost of acquisition at Rs 6687 crore i.e. 2.5x EV is not cheap. “Overall, we expect this merger to increase EVPS for FY23E by 8% to Rs 183 per share,” ICICI direct research said. The firm has revised up its target to Rs 850 from Rs 800 earlier by valuing the company at 4.4x FY23E EV.
Emkay Global Financial Services
Rating: Buy, Target: Rs 870, Upside: 18.36%
The brokerage firm has pegged a 12-month target at Rs 870 apiece, implying a 18.36 per cent rally. It noted that the valuation premium of Rs 4000 crore over the EV of Exide Life means 3 per cent of HDFC Life’s current market cap. However, the valuation of 2.5x P/EV for a franchise without any material banca distribution sets an expectation benchmark for other such struggling companies.
Rating: Buy, Target: Rs 775, Upside: 5.4%
The deal values Exide life at 2.5x current EV, which Philip Capital believes to be on a higher side as Exide life offers little given their smaller size and large part of synergies is likely to come because of scale that HDFC Life brings. EV per share for HDFC Life is expected to increase by 5 per cent, the brokerage firm has retained its buy rating for the stock.
Motilal Oswal Financial Services
Rating: Neutral, Target Rs 750, Upside: 2%
The Life Insurance industry in India is a highly fragmented market, with a total of 23 private players and the government-owned LIC. The transaction values Exide Life at 2.5x Jun’21 reported EV, which appears expensive in the context of Exide life’s three-year premium and EV CAGR of 10% and 8%, respectively. Motilal Oswal Financial Services’ EV per share estimates on HDFC Life are likely to increase by 2.5%/2% over FY22/FY23E as the transaction is completed.
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