Most insurance stocks have delivered returns of more than 10% in the last month.
The country’s life insurers have faced some major difficulties over the past few months, mainly due to complications related to Covid-19.
In addition to hindering profits, due to higher-than-normal disclosures, it also hampered revenue growth.
Companies are unwilling to implement new policies in an environment of high uncertainty, which strongly affects new businesses.
This affects investor sentiment, pushing stock prices of all life insurance companies 5-10% increase since the beginning of the year.
But this trend has reversed over the past month, with most of them delivering returns of more than 10%.
So what triggered this change? Let’s find out together.
#1 SBI Life
At the top of the list, we have SBI Life.
As one of the top three life insurers in the country, SBI Life outperformed the BSE Sensex Index to deliver a one-month return of 6.1%, 5% higher than the index.
This outperformance is due to improved margins (a value of new business (VNB) is a measure of profitability in the life insurance business) generated by a sound business structure. stronger.
The company reported VNB margins expanding by 100 basis points in the third quarter of 2022 year-on-year.
This margin expansion of VNB is likely to continue as the company’s business operations continue to change.
However, gross earnings (described by the annual equivalent premium (APE), a common revenue calculation used by insurers) did not increase much, growing only 4% during the same period. .
The company’s net profit has grown at a 5-year CAGR of 11%. The 5-year average dividend yield is 0.2%, slightly below the industry average of 0.9%. The return on equity (ROE) stands at about 18.5%.
As a direct subsidiary of India’s largest bank, State Bank of India, SBI Life has assets under management of over Rs 2 billion (AUM).
Being a bank-backed insurance company comes with a lot of perks. In addition to an extensive distribution network, SBI Life also has a trusted brand name in the insurance industry.
#2 HDFC Life
Next on the list is one of India’s largest private sector life insurers, HDFC Life, which also outperformed the BSE index by 5.8%.
While the BSE Sensex Index is up 1.2%, the company has delivered a return of 6.9% over the past month.
This disparity is due to the company’s improved margins in VNB, as well as a moderately better revenue structure. However, it is highly likely that this expansion could be threatened in the near term, due to Exide’s acquisition of the life insurance business.
The company recently completed the acquisition of Exide Life Insurance, which has a much lower operating margin of VNB than HDFC Life.
However, management believes that Exide’s VNB margin will soon converge with that of the group.
HDFC Life has built strong branding and franchises, monetizing its relationships with HDFC and HDFC Bank.
The company has built a strong network to cross-sell its products to HDFC bank customers and manages total assets over Rs 2tn.
The business is growing well, recording a 5-year CAGR of net profit of 8.5% and a 5-year average ROE of 20.1%. The 5-year average dividend yield is 0.3%, well below the industry standard of 0.9%.
#3 ICICI Prudential Life Insurance
Third on the list is ICICI Prudential Life Insurance.
Shares have also outperformed the BSE Sensex index, up more than 10% over the past month.
This stellar performance is a direct result of improved revenue growth and reduced reliance on less profitable businesses.
According to the March 2022 results, ICICI Prudential’s revenue has increased by 25% compared to the previous quarter.
This leap gives investors peace of mind, especially as revenue has been steadily declining over the past three years. However, concerns about a product mix with multiple market risks remain.
However, despite weak revenue growth, the company’s VNB’s profit margin improved. They stood at 28%, up 3% year-on-year.
On a 5-year CAGR basis, ICICI Prudential’s net profit declined 14.5% but still achieved a 5-year average return on equity (ROE) of 15.5%.
The company’s average dividend yield over the same period was 0.7%, close to the industry average of 0.9%.
#4 Maximum Financial Services
Fourth on the list is Financial Services Max.
The stock has delivered a 14.7% return for shareholders, 13.5% more than BSE Sensex over the past month. But prior to this jump, the stock fell to Rs 708, down 37% from its 52-week high.
The drop was driven by company-related issues driving and weak APE growth.
And while news of family feuds and allegations of embezzlement may not hinder the company’s operations in the long run, heavily committed advertiser (more than 64% of the total 14.5% stake) raised a big red flag.
The recent rise in share prices could be a function of an 88.8% increase in net profit, despite a 8.2% drop in total earnings.
The company’s profit, as reflected in VNB, rose 22% on a higher basis, boosting the share price further.
Max Financial boasts total assets under management of Rs 1 tn. Profits have skyrocketed over the past 5 years at a 5-year CAGR of 7.5%. The business generates a 5-year average return on equity (ROE) of 20.1% and the company pays no dividends.
Now, you might be wondering why the insurance giant, Life Insurance Corporation of India (LIC) didn’t make the list.
The only joker in the group, unlike its peers, the LIC has underperformed the BSE Sensex Index. Shares have fallen 13.5% since listing, which is less than a month ago.
In addition to weak macroeconomic factors and high inflation, the credit for the drop goes to the weak results posted by the company. What’s more, in the context of peers reporting strong numbers.
The company posted a 17% YoY drop in consolidated net profit for Q3 2022 even as net premium income grew 17.9% YoY.
In short, it’s…
Backed by strong and trusted brands and strong distribution networks, the private sector leaders appear to be doing well.
The advent of the ‘LIC era’ has had no effect on share prices and their valuations.
While there are still some lingering concerns about competition in specific segments of the life insurance business, private players appear to be on the verge of a rapid recovery.
Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.
This article is provided by Equitymaster.com
(This story has not been edited by NDTV staff and was automatically generated from the feed provided.)
