Shares of Canara HSBC Life Insurance will be under investor's radar on Thursday, Feb. 26 after leading domestic brokerage Antique Stock Brokers initiated coverage on the life insurer with a 'buy' rating. The brokerage's bullish call is driven by several key triggers inlcuding the industry-leading bancassurance-led growth logged by the life insurer, along with strong financial indicators such as its strong and diversified product mix, consistent VNB margins, favorable risk reward, and more.
''We initiate coverage on Canara HSFC Life Insurance with a 'BUY' rating and DCF based target price of Rs 190, implying 1.8x FY28E P/EV. The stock currently trades at an attractive 1.7x/ 1.5x FY27E and FY28E P/EV respectively for FY26-28E APE/ VNB / EV CAGR of 17%-19%. We see the risk-reward as favorable as concerns regarding higher dependence on the banca channel seems adequately priced-in,'' said Antique Stock Brokers on the Gurugram-based life insurer.
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Canara HSBC Life Insurance is a joint venture primarily owned by Canara Bank, HSBC Insurance (Asia Pacific) Holdings, and Punjab National Bank. It has a bancassurance model bringing the market strength of together public and private banks. According to the domestic brokerage, the key risks for the life insurer's growth-based outlook include higher dependence on banca channel, regulatory risk, taxation changes, continuous investments in agency channel, among others.
Why is Antique bullish on Canara HSBC Life Insurance?
The five triggers or drivers behind Antique's bullish call for Canara HSBC Life Insurance are as follows:
1.Banca to drive industry-leading near-term growth: Canara Bank and HSBC accounted for +72% and +13% of Canara HSBC Life Insurance's FY25 individual APE, having grown at 21% and 19% CAGR over FY15-25. Canara Bank, the promoter bank, with 120 million customers provides both, penetration room (1.7% in FY25) and improved branch-level productivity via increased digitization. Besides, it can leverage Canara Bank's large network of 10,000+ branches spread across tier 2/ 3 cities. HSBC provides access to its NRI and HNI customers focused on large ticket-size saving products. Canara HSBC Life may continue to post industry leading APE growth (17% CAGR over FY26-28E) in the medium-term, according to Antique Broking.
2.Product mix to improve in favor of annunities: Canara HSBC Life Insurance's individual FY25 APE growth was supported by a strong 82% YoY growth in ULIP and the share of ULIP in the product mix rising to 54% from 35%-37% in FY23-24. This mix may turn more balanced with ULIP constituting 50% in the medium-term. Given strong traction in retail protection post the GST cuts, the share of protection is likely to inch 10% by FY28. The share of annuities which stood at 12%-13% in FY24-25 is likely to inch up to the mid-teens in the near-term, according to the brokerage.
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3.VNB Margin supported by multiple levers: Canara HSBC Life Insurance has one of the lowest expense ratio after SBI Life Insurance at 18.7% (down 130bps YoY) during 9MFY26. It expects its VNB margin to improve by at least 50 bps per annum over the next few years despite offsetting GST ITC disallowance and costs for building agency channel via better savings product mix, higher growth in protection and annuities, improving product level margins and costs optimization or rationalization. The brokerage expects its VNB margin to improve from 19.1% in FY25 to 21% in FY28E.
4.Healthy APE growth with sustained momentum: In 9MFY26, APE growth accelerated (+22% YoY) higher than the industry growth, supported by strong ULIP demand, steady annuity growth, and early signs of revival in protection post GST rationalization. Over the medium term, the newly launched agency channel is expected to supplement growth and improve distribution diversification, though management has clearly articulated that scale will be built in a phased and productivity-led manner, rather than through rapid hiring that could dilute margins.
5.Persistency ratio and strong solvency: 13-month and 61-month persistency ratios have improved from 74.5% to 85.6% and 47.3% to 59.2% respectively over FY22 to 9MFY26. This is aided by quality new business sourcing through need base. Solvency ratio remains healthy at 1.9x and the insurer plans to raise Rs 2.5 billion via NCDs to meet increasing requirements of higher protection growth. This improvement has been broad-based across cohorts and products, rather than driven by one-off clean-ups.
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