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Buy these 3 insurance stocks for as much as 46% gains; sector entering multi-decade growth era


The brokerage firm believes that growth is likely to come on the back of economic progression and favourable demographic changes amid a very high and rising mortality protection gap.
(Image: REUTERS)

India’s insurance sector is sitting at the cusp of entering a multi-decade growth era, according to analysts at domestic brokerage and research firm Emkay Global. The brokerage firm believes that growth is likely to come on the back of economic progression and favourable demographic changes amid a very high and rising mortality protection gap. This is set to benefit listed insurance players that may gain as much as 46%. “In our view, the formidable combination of brand and distribution reach, coupled with innovations in offerings, should help large private players continue to gain market share with better profitability as the benefits of product mix changes and operating leverage kick in,” Emkay Global said.

Stocks to buy

SBI Life: Buy

Target price: Rs 1,670

SBI Life is the top pick in the sector, termed as the most underappreciated consistent performer. “We estimate SBI Life to deliver 31% VNB CAGR in the next three years, driven by ~23% APE growth and gradual margin expansion as favorable product mix changes and operating leverage continue to play out,” Emkay Global said. So far this year the stock has rallied 27.43% to now trade at Rs 1,141 apiece. To scale the target price of Rs 1,670 per share, the stock will have to appreciate 46% from current levels. 

HDFC Life Insurance: Buy

Target price: Rs 880 

HDFC Life is estimated to deliver 25% VNB CAGR in the next three years, led by the combination of ~20% APE growth and sustained margin improvement on operating leverage and favourable product mix changes. “ Going ahead, we see APE growth to be driven by a gradual increase in policy count, sustained ticket-size increases and additionally better retail credit offtake in the financial system (at its partner banks and NBFCs) to bring back growth in the credit life segment,” the brokerage firm said. Currently, the stock trades at Rs 702 per share, up just 3.5% since January this year. The target price of HDFC Life implies a 25% upward rally. 

Max Financial Services: Buy

Target price: Rs 1,230

“Our Dec-22E TP for Max Financial is Rs 1,230 per share, based on its 80% stake in Max Life (assuming Axis Bank will increase its stake to ~20%), being valued using appraisal value method and then adjusting for Holding Company expenses,” analysts at Emkay Global said. The brokerage firm added that, although the holding company-led structure and non-operational issues had affected Max Financial shares in the past, the sealing of Axis Bank’s ownership in Max Life will provide the much-needed comfort on the longevity of distribution. For the stock to reach the target price, the scrip is expected to jump 25%.

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