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Global brokerage firm CLSA is most bullish on Max Financial Services in the insurance space. It was followed by SBI Life then HDFC Life Insurance and ICICI Prudential Life Insurance Company.

In its report on January 19, CLSA said that private life insurers have recovered well from the pandemic with positive APE (annual premium equivalent) growth since September 2020. Therefore, it increased its FY20-23F  value of new business (VNB) growth estimates by 7-13%.

With a rally of 154% from March lows, shares of Max Life Insurance have emerged as the top gainer in the list. The scrip has jumped to Rs 711 on January 19 from Rs 279.75 on March 24.

ICICI Prudential Life, HDFC Life Insurance and SBI Life Insurance have also advanced 132%, 105% and 73%, respectively, from their March lows. The benchmark BSE Sensex has advanced 93% to 49,398 on January 19 from 25,638 on March 24 last year.

“We expect the sector to return to steady compounding from FY22 (16-19% APE and VNB CAGRs) as the pandemic provides a strong tailwind to the structural protection opportunity, non-PAR savings remain an under-penetrated segment and Ulip businesses could also be bottoming-out,” CLSA said.

It further added that the sector valuations have mean-reverted and are now trading either close to pre-Covid-19 levels or in some cases higher than pre-Covid-19 levels. “This drives our downgrade of HDFC Life and ICICI Prudential Life from ‘Buy’ to ‘Outperform’,” CLSA said.

Commenting on the individual stocks, CLSA added that Max Life insurance has been able to diversify away from its high PAR dependence and has delivered steady growth and market share gains over the last 5-7 years. Completion of its Axis bank deal will lead to further re-rating as not only would distribution uncertainty end but Axis bank will be able to drive higher value accretion through stronger business momentum. It has revised the target price upward to Rs 950 which indicates an upside of 33% from the current market price of Rs 714 (on January 20).

It further said that HDFC Life continues to have a balanced product mix and its ability to innovate on margin accretive products will continue to drive its best in class VNB margins and ROEV.
Post the recent re-rating, valuations are 5-10 per cent higher than 2019 and average 2018-19 valuations and flat vs Jan-Feb 2020 valuations. CLSA is bullish on HDFC Life with a target price of Rs 765.

It also raised the target price for SBI Life to Rs 1,125 from Rs 893 earlier. “SBI Life’s distribution strength has led to the fastest margin share gains. While SBI Life was slow to start off post-pandemic, Dec 2020 data clearly points to improving new business momentum.”

On the other hand, it downgraded ICICI Prudential Life to ‘Outperform’ from ‘Buy’ with an upward target price of Rs 580 (Rs 535 earlier). “ICICI Prudential Life’s new business APE trends have been weak due to its high dependence on ULIPs but VNB trends have been strongly driven by strong protection business. We expect APE growth to mean revert to peer levels as ULIPs possibly would bottom out in FY21F,” it added.