Sharekhan sees 35% upside in this insurance stock. Should you buy?
Premium- Sharekhan sees HDFC Life shares to hit ₹740 apiece levels in long term
Shares of HDFC Life Insurance Company has been under base building mode after ushering in the new year 2022. In year-to-date time, HDFC Life share price has fallen from around ₹650 to ₹545 apiece levels, logging around 16 per cent dip in this time horizon. However, brokerage firm Sharekhan believes that the large-cap insurance stock may come out of the consolidation phase and can go up to ₹740 per share levels, delivering around 35 per cent rise in long term.
On valuations of HDFC Life shares, Sharekhan market research report says, "HDFC Life trades at 3x/2.5x its FY2023E/ FY2024E EVPS. We believe valuations are reasonable, as it has a well-diversified product bouquet (no segment contributing to more than 30% of APE), best-in-class branding, and strong metrics. We believe the company is well placed to deliver strong and sustainable long-term APE growth."
On fundamentals of HDFC Life shares that may attract buying interest, brokerage report highlights, "HDFC Life Insurance Company (HDFC Life) reported strong business performance across various parameters. Its total new business premium market share stood at 21% among the private players, making the company second largest in the private and third largest in the overall insurance space. Its new business margin increased to 27.4%, an increase of 130 bps y-o-y aided by a balanced product mix and the value of new business grew by 22% y-o-y to Rs. 2,675 crore. The normalised operating return on embedded value (EVOP) of the company was 19.0% versus 18.5% in FY2021 due to business growth and a favourable product mix. Its credit life business too saw strong growth of 55% y-o-y in FY2022."
HDFC Life’s subsidiaries HDFC Pension and HDFC International Life and Re, continued to perform well despite the volatile market conditions in FY2022. HDFC Pension AUM grew by 73% y-o-y to Rs. 28,410 crore as of March 2022. Currently, the company has 300 partners with the bancassurance channel contributing 60% to the Individual APE.
Giving 'good long term bet' to HDFC Life stocks, Sharekhan report says, "Owing to strong fundamentals (robust balance sheet and consistent profitability) and high long-term growth potential for the Indian insurance industry in general and HDFC Life, in particular, we find it to be an attractive long-term bet. We maintain our Buy rating on the stock with an unchanged price target (PT) of Rs. 740."
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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.