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4 Stocks To Buy For Value Investors From The Private Insurance Space

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Emkay Global lists these 4 stocks to buy from the current levels

Emkay Global lists these 4 stocks to buy from the current levels

Current market price Target price
ICICI Prudential Life Rs.518 Rs620
HDFC Life Rs.559 Rs670
Max Financials Rs 770 Rs 1130
SBI Life Rs 1109 Rs 1615

According to Emkay Global, the current valuations of private life insurers seem to be completely ignoring the growth prospects of the sector, and within the sector, the franchise strength of these top-notch companies.

“Although we are slightly trimming our estimates and building in conservatism in valuation methodology by reducing terminal growth rates, the life insurance stocks appear attractively valued and offer a favorable risk-reward, in our view.

The current market prices that imply 12-28x FY23E VNB on FY22E EV seem to be completely ignoring the growth story. We are upgrading ICICI Prudential from Hold to Buy on favorable valuations. Our pecking order: SBI Life Insurance (Buy, TP: Rs1,615), Max Financial (Buy, target price: Rs 1,130), HDFC Life (Buy, target: Rs 670) and ICICI Prudential (Buy, target price: Rs 620) ),” the brokerage has said.

Life insurance stocks underperform significantly

Life insurance stocks underperform significantly

According to Emkay Global, the listed private life insurers have under performed the broader market materially in the last 3-6 months. And, the timing of this under performance has been baffling as it has come when the Covid-19-led losses and the impact of reinsurance price hike on the protection business were already known to all and incorporated into estimates.

“The temporary softness in retail new business in Jan’22 and Feb’22 (private sector RWRP 2-year CAGR in 11M FY22 was still strong at 11.5%), the upcoming LIC IPO and FII outflow could only partly explain this under performance, “the brokerage has said.

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LIC IPO does not change fundamentals of private players

LIC IPO does not change fundamentals of private players

Notwithstanding technical factors such as flows and rebalancing of weights by the funds, the impending IPO of LIC should not change the fundamentals of private players.

“From product offering to distribution to cost structure, private players are very different from LIC. In this context, the trend of private players expanding faster by targeting young and affluent customers with innovative product offerings will continue. Under the new segregated fund structure, LIC’s bonus rates in by products might reduce gradually, thus reducing its attractiveness,” the brokerage has said.

Above sector average growth and stable margins look much conservative for private leaders

Above sector average growth and stable margins look much conservative for private leaders

Amid the recent slowdown in new business, there have been some concerns around the growth outlook of these players.

“However, in the medium term, the sector is likely to grow in line with nominal GDP growth of 11-12%. In addition, the private players should deliver relatively faster growth given their brand and distribution. On the margin front, the low hanging fruits have been largely harvested. Yet, continued support from operating leverage should help maintain margins despite potential unfavorable product mix changes. Additionally, a rising interest rate scenario should support margins in the near term,” Emkay Global has said.





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