CLSA bullish on life insurers Max and SBI

MUMBAI: CLSA is most bullish on Max Financial Services in the insurance space followed by SBI Life Insurance Company and then HDFC Life Insurance Company and ICICI Prudential Life Insurance Company. With private life insurers recovering well from the pandemic and seeing positive growth in annual premium equivalent or APE since September 2020, the brokerage is positive on the sector. However, it has downgraded HDFC Life and ICICI Prudential as valuations have reverted back to pre-Covid levels. Both stocks have more than doubled from their March 2020 lows.

Max Financial

• Rating: Maintained buy
• Target Price: Raised to Rs 950 from Rs 780.

CLSA said Max Financial has been able to deliver steady growth and share gains, and has been able to diversify from its high PAR (participating insurance) dependence. The brokerage said completion of the deal with Axis Bank will not only end distribution uncertainty but lead to better business momentum as well. "Our revised target price of Rs 950 implies 37% upside even after factoring in a 10% discount for regulatory uncertainty," said CLSA.

SBI Life Insurance Company

• Rating: Maintained buy
• Target Price: Raised to Rs 1,125 from Rs 1,000

CLSA said SBI Life's distribution remains best in class. Even though growth normalised slower than peers post pandemic but SBI Life is unlikely to lag peers on the growth front in the medium term, said CLSA. "Valuations are still reasonable and 19% below Jan/Feb 2020 levels," said CLSA.

HDFC Life Insurance Company

• Rating: Downgrade to outperform from buy
• Target Price: Raised to Rs 765 from Rs 675

HDFC Life’s ability to drive innovation in margin-accretive, new products will continue to drive best in class value of new business margins and return on embedded value, said CLSA. The brokerage said its downgrade is primarily driven by its valuation which is in-line with pre-Covid-19 highs. "Post the recent re-rating, valuations are 5-10% higher than 2019 and average 2018-19 valuations and flat vs Jan/Feb 2020 valuations," said CLSA.

ICICI Prudential Life Insurance Company

• Rating: Downgrade to outperform from buy
• Target Price: Raised to Rs 580 from Rs 535

The company has faced significant market share loss due to weakness in ULIPs but its value of new business performance has held up due to strong protection performance. The brokerage has downgraded ICICI Prudential Life as the stock is trading close to fair value.