Barring HDFC Life, growth expected to be moderate for insurers in FY20; re-rating makes outlook less positive
Overall Individual APE (annual premium equivalent) grew by ~16% y-y in Dec-19, with 17% y-y growth for private insurers. The 17% growth for private insurers is coming on a 14% growth base in Dec-18. Sep-19 and Oct-19 growth for private insurers dipped to 2-4% y-y, but the pick-up in Nov-19 and Dec-19 indicates stability in growth trends. From a sector perspective, the pick-up in growth in the past two months is positive after muted trends in Sept and Oct-19. Within our coverage universe, growth remained strong for HDFC Life, SBI Life and Max Life, while growth trends for ICICI Prudential Life remained muted. We maintain our Neutral ratings on HDFC Life and ICICI Prudential (mainly on valuations).
Less positive on the sector after the recent re-rating
* We have lowered growth expectations for FY20 for select insurers (SBI Life and HDFC Life) and expect moderate growth of 4-15% for insurers except for HDFC Life, which has a favourable base until Mar-20. Nov and Dec-19 growth implies our coverage stocks will likely meet our APE growth expectations.
* Stocks have moved up by 10-25% in the past three months and 20-30% in the past six months (vs NIFTY50 index up 8% in the past three months and 5.5% in the past six months), leading to valuations increasing from 3x to +4.3x Sep-21F EV for HDFC Life, 1.9x to 2.7x Sep-21F EV for SBI Life and 1.5x to 2.1x Sep-21F EV for IPRU and moved closer to our TPs – we recently downgraded HDFC Life and IPRU Life to Neutral.
* We prefer private corporate banks over life insurers.
Dec-19 highlights for key players:
* SBI Life: Reported 17% y-y growth on a high base of 24% growth in Dec-18.
* HDFC Life: Total APE grew by 46% y-y in Dec-19 on a base of 4% contraction in Dec-18.
* IPRU Life: IPRU reported 8% y-y growth, albeit on a weak base of 5% y-y contraction. On a 2-year CAGR basis, the rolling three-month volumes continue to contract (down 1%).
* Max Life: Max Life grew by 23% y-y in Dec-19 on a relatively modest base of 7% y-y growth in Dec-18.