The insurance sector (especially life insurance) is one of the most underpenetrated sectors in India. On the back of a strong growth outlook and favorable macroeconomic tailwinds, brokerage house Religare Broking has initiated coverage on the space with a bullish view.
"We are positive on the life insurance sector as it is poised for growth due to favorable factors like rising GDP growth, increasing financial literacy amongst individuals, growth in group insurance and focus on financial inclusion. Government schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana, and Pradhan Mantri Suraksha Bima Yojana would also give a push to the sector and help in the penetration of Insurance in rural areas. We initiate coverage of the Life Insurance Sector as we expect topline growth due to favorable product mix and improvement in the value of new business (VNB) margins," explained the brokerage.
Religare has buy calls on HDFC Life Insurance and SBI Life Insurance, hold on LIC, and accumulate on ICICI Prudential.
The brokerage believes that the industry is poised for growth due to government push, financial inclusion, better margins and penetration in semi-urban and rural areas. While the industry has been impacted on account of several headwinds such as covid and changes in government policies, there has been a revival in demand for insurance products, it observed.
It further noted that the under-penetration presents an opportunity as the overall industry is in the nascent stage in India and has grown consistently over the years.
It informed that on a total premium basis, the industry grew at 10 percent CAGR from FY14-FY22 while on the new business premium basis, the industry grew at 13 percent CAGR from FY14-FY22. Meanwhile, it further added that on a new business premium basis, the private sector outpaced the public sector (LIC of India) as it grew at a CAGR of 19 percent while the public sector saw a growth of 10 percent CAGR over FY14-FY22.
Going ahead, Religare expects the total premium and new business premium to increase in the estimates as more policies are dispensed in the future which will increase the penetration of life insurance. It sees the total business premium for stocks under its coverage universe (representing 82 percent of market share) growing at 10 percent CAGR over FY22-FY25E while it estimates new business premium to grow at 12 percent CAGR over FY22-FY25E.
The business premium will grow sustainably in the estimates as the number of policies is seeing consistent growth along with growth in new business premium, it added.
Stocks
HDFC Life Insurance: The brokerage has a ‘buy’ call on the stock and a target price of ₹614, which was achieved by the stock in Friday's trade. It advises investors to continue holding the stock as we are still bullish on the Insurance sector as well as the growth prospect of the company. Religare noted that HDFC Life Insurance is India’s third largest life insurer with a new business premium market share of 7.2 percent as on February-23. The company has performed consistently as premium grew at a CAGR growth of 19 percent for FY17-FY22. It gains from the strong brand name and also HDFC Bank as its Bancassurance partner while having access to the strong distribution network and diverse customer base, said the brokerage.
“We remain positive on HDFC Life on the back of its balanced product mix, widening of distribution network and driving on parents' bank reach. It has banking partnerships with banks like Bandhan Bank, AU Small Finance Bank will also help it to widen its reach. We believe the insurance company will benefit from the acquisition of Exide Insurance by penetrating in tier-2 and tier-3 cities. We expect a net premium income/PAT to grow at a CAGR of 12%/31% over FY23-25,” it explained.
SBI Life Insurance: The brokerage has a ‘buy’ call and a target price of ₹1,330, indicating an upside of 4 percent. SBI is the largest private insurer in terms of market cap and also has the largest market share in terms of APE and VNB., it said. It has the lowest operating cost ratio amongst its peers and is constantly improving mainly due to its operating efficiencies and low commission cost, noted Religare.
"We remain positive on the bank on the back of its increasing APE growth led by strong growth in non-par products and protection plans. Along with the growth in APE, its VNB is also expected to grow due to cost efficiencies and operating leverages. The company is also expected to gain market share from the strong agency network and partnership with digital payment platforms, etc. We expect APE/NBP/VNB to grow at a CAGR of 20%/18%/21% over FY23-25E," it said.
Life Insurance Corporation of India: The brokerage has revised the stock recommendation from buy to hold and has a target price of ₹646, indicating an upside of 7 percent. LIC is India’s oldest and largest insurance player with a market share of 64 percent in terms of new business premium and 16 percent in terms of sum assured (as on Feb-23). The insurer has a widely spread agency network across geographies and high brand loyalty, maintains a high customer base and is most penetrated in rural regions compared to other players, stated the brokerage.
"LIC aims to regain its market share which was lost to private insurers in FY23 by introducing products that fit the market, relying on its robust distribution network and altering the existing product as and when needed. It expects growth from non-par and annuity products which will lead to improvement in margins while maintaining leadership in par products. We will be watchful on how the execution of changing product mix takes place. We expect APE/VNB to grow at a CAGR of 16%/23% over FY23-25E and VNB margin to remain stable at 18.2% in FY25," it rationled.
ICICI Prudential Life Insurance: The brokerage has initiated coverage on the stock with an ‘accumulate’ call and a target price of ₹496, which has also been achieved by the stock. ICICI Prudential Life Insurance is the fourth largest life insurer with a market share of 4 percent in new business premium and a 15 percent market share in sum assured amount. However, it has seen a decline in premium income growth in the past few years while the market share has also declined, noted Religare.
"We remain positive on the insurance company on the back of its strong APE and VNB growth. Also, the products are gaining traction and the company is widening its network to reach the underpenetrated market. Its VNB margin has constantly improved over the years. We expect APE/NBP/VNB to grow at a CAGR of 14%/14%/15% over FY23-25E," it said.
