Strong execution delivering sector-leading performance
Niva Bupa has been able to deliver standout growth in health insurance premiums (~40% CAGR between FY20-25) while its improved scale and assets under management should help improve margins and earnings growth ahead (expect IFRS PAT CAGR of 53% over FY25-27E). The relative high growth could continue driven by diversified channel which in turn creates positive flywheel on loss ratios, especially when players across industry including Niva have taken multiple price hikes. In this report, we have detailed the key tenets of earnings trajectory under accounting methods of IGAAP (without and with 1/n) and IFRS which should help appreciate the impact of long-term business mix and deferment of acquisition costs in the quest of realising the normalised annualised earnings.
Initiating coverage with BUY; INR 90 TP basis 35x FY27E EPS of INR 2.6 (IFRS)
Niva Bupa is likely to be a beneficiary of the structural growth story of India’s under-penetrated health insurance market given its customer-centric focus, tech-based capabilities and historical growth track record. It has showcased strong CAGR of ~40% in GWP between FY20 and FY25 leading to improvement in its retail market share from 4% in FY19 to 9.1% in FY24 and 9.4% in 11MFY25. Loss ratio remains good at average of ~58% in last six years (FY19-24).
We prefer IFRS financials for arriving at target valuation as it provides better matching of revenue with costs/claims expenses. We expect 53% earnings CAGR between FY25-27E in terms of IFRS driven by higher-than-industry growth, improvement in combined ratio and growth in investment AUM/yields. Under IFRS, we estimate PAT of INR ~4.7bn for FY27E and ascribe a multiple of 35x to the same to arrive at target valuation of INR 165bn. We have given higher valuation multiple of 35x PE to Niva Bupa (vs 30x for Star Health) to factor in higher than peer earning growth period in near horizon.
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