Private insurance companies reported an annual premium equivalent (APE) growth of 20% in 2021, making the year a reasonable one for them, however, the stock market performance of some listed players was not quite impressive owing to high valuations, said analysts at CLSA. The brokerage firm believes in 2022, the prospects are better for the listed private insurance players with APE growth being the key driver. While SBI Life Insurance Company is CLSA’s top pick in the sector, Max Financial remains a ‘Buy’ call while HDFC Life Insurance and ICICI Prudential Life have been upgraded to a ‘Buy’ rating. Of the four stocks, Max Financial Services is down in red year-to-date, while the other three have gained marginally.
SBI Life Insurance: Buy
Target price: Rs 1,800
So far this year SBI Life Insurance Company’s share price has gained 2.16% to now trade at Rs 1,235 per share. In 2021, the stock rallied more than 33%. “We expect the strongest VNB growth over FY21-24CL, driven by solid APE growth and catch-up on margins/ product mix with peers. Long term, it has the lowest cost ratios and one of the strongest distributions,” CLSA said. SBI Life is CLSA’s preferred pick among private insurance players. The target price suggests a massive 45.7% upside potential.
Max Financial Services: Buy
Target: Rs 1,350
Shares of Max Financial Services have fallen more than 3.5% so far this year. In 2021, Max Financial was a strong performer as the stock rallied more than 40%. Analysts at CLSA believe that distribution risk is addressed, and Max Life delivers consistent growth with best-in-class core return on embedded value. They added that Growth momentum is picking up after a softer first half of the current fiscal year. The target price hints 38% upside.
HDFC Life: Buy
Target price: Rs 815
CLSA has upgraded HDFC Life Insurance Company to ‘Buy’ from ‘outperform’ rating earlier. In 2021, shares of HDFC Life slipped 4%, underperforming the overall market. Analysts believe that HDFC Life is a consistent performer, but closing the margin gap versus peers led to the past 12 months of underperformance. “Incrementally, we expect stock compounding to continue,” they added. The target price suggests 25% upside potential.
ICICI Prudential Life Insurance Company: Buy
Target price: Rs 750
ICICI Prudential has also been upgraded to ‘Buy’ rating from the previous rating of ‘outperform’. “While the VNB margins are best in class, IPRU will need to deliver on APE growth to close the valuation gap with peers,” CLSA said. The stock will have to rally 31% from current levels to touch the target price.
Things to watch out for
Going ahead, CLSA analysts expect private Life insurers to deliver 20% Cagr in VNB over FY22-24CL with APE growth of 16-17% over FY23/24. Although Life Insurance Corporation of India (LIC) is expected to come with its mega IPO this year, analysts do not see it as a disruptor. “LICs individual APE market share is down from 44% in FY18 to 36% in 9MFY22, with market share loss accelerating with evolving product mix,” they said. Analysts further highlighted that the LIC cost base is now materially higher than private insurers; hence, LIC is unlikely to be a growth disruptor for private insurers.