3 Stocks From Insurance Sector HDFC Securities Suggests For Potential Gains Of Up To 31.39%

HDFC Securities sees potential gains from stocks of three life insurance companies - SBI Life Insurance Company Ltd, Max Financial Services Ltd, and ICICI Prudential Life Insurance. In its sector coverage report, the stock broking firm mentioned that the industry has been impacted due to the finance bill and the tax regime proposed.

The stock broking firm stated that the top four private life insurers are likely to witness a 20-27% adverse impact on FY24E APE; predominantly on account of the impending transition to the new tax regime.

"We flag "high ceding charges" in guaranteed NPAR savings as the next potential target as policymakers look to protect policyholder interest and improve life insurance (LI) penetration.", it added.

Further, it mentioned, while the demand for retail term protection remains subdued and the Apr-23 growth print was soft, we await evidence of medium-term growth momentum.

"We are constructive on the long-term growth prospects of the life insurance sector, we believe major tectonic shifts will create near-term challenges, albeit preparing the industry for a cleaner insurance penetration."

Amongst top players, HDFC Life and Bharti Axa Life Insurance outperformed the industry (+7/8% YoY), whereas SBI Life Insurance Company /Ltd, Max Financial Services Ltd / ICICI Prudential Life Insurance under-delivered as individual APE de-grew 31/4/5% YoY.

Although SBI Life Insurance Company Ltd, Max Financial Services Ltd, and ICICI Prudential Life Insurance's fourth quarter performance was weak, the brokerage house has given a Buy or Accumulate rating.

1. Add shares of ICICI Prudential Life at a target price of Rs 540 (upside potential of 14.46%)

HDFC Securities suggests that notwithstanding, ICICI Prudential Life Insurance's re-engineered business model, which is focused on a more diversified product mix along with an increased protection share, sustained sharp de-growth in the parent channel can sideline APE growth from other channels.

View: "We bake in a soft APE/VNB CAGR over FY23-25E at 11/9% to factor in weak growth internals coupled with a challenged macro environment. We rate IPRU an ADD with a TP of INR540 (implying 1.6x Mar-25E EV)."

Stock price: The current market price is Rs 471.15, down by 1% on an intraday basis. The 52-week low is at Rs 380.95 and the 52-week high is at Rs 608.65.

2. Add shares of Max Financial Services Ltd at a target price of Rs 910 (upside potential of 30.42%)

As per the research report, HDFC expects FY24E to be a challenging year for Max Financial Services owing to soft NPAR sales in the high ticket-sized bucket, the AXSB channel not yet showing encouraging signs of growth, the gradual shift of customers to a new tax regime and continued weak growth momentum in retail protection.

The stock broking firm believes that any further dip in the company's wallet share in the AXSB banca channel (Q4FY23: 70%) poses a business concern.

View: "We cut our VNB estimates for FY24E-25E by 3.9/5.6% to factor in challenging macro conditions and expect APE/VNB CAGRs of 7.9/3.5% and operating RoEVs in the range 20-21% in FY24E/25E. We retain ADD with a revised target price of INR910 (implying 1.7x Mar-25E EV). The stock is currently trading at FY24/25E P/EV of 1.6/1.3 and adj. P/VNB of 7.5/5.2.", the report added.

Stock price: The current market price is Rs 689.50, down by 1.65% on an intraday basis. The 52-week low is at Rs 599.30 and the 52-week high is at Rs 884.70.

3. Buy shares of SBI Life Insurance at a target price of Rs 1,580 (upside potential of 31.39%)

Over FY24E, HDFC expects changes in personal taxation to cause significant disruption to insurance sales. While the management remains upbeat about achieving a 20-25%YoY APE growth in FY24E,

The stock broking guides that one needs to watch out for sensitivity to insurance sales from the removal of tax incentives in the new tax regime and tax exemption in NPAR savings with ticket size >INR0.5mn.

View: "We, however, take a longer-term view of the business and appreciate the strong distribution footprint of its parent SBI (26k+ branches), a healthy mix of protection and NPAR, lowest operating cost ratios (9.6% in FY23), and improving VNB margins (30.7% in FY23). We expect SBILIFE to deliver FY23-25E APE/VNB CAGRs of 12/12% and retain BUY with a TP of INR1,580 (implying 2.4x Mar-25E EV). It remains our top pick in the sector", it said.

Stock price: The current market price is Rs 1205.65, down by 0.16% on an intraday basis. The 52-week low is at Rs 1,039.25 and the 52-week high is at Rs 1,339.55.

Disclaimer
The stocks have been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the author, or the brokerage house will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.