ICICI Securities initiates coverage on Niva Bupa Health with 22% upside potential

Domestic brokerage firm ICICI Securities has initiated coverage Niva Bupa Health Insurance Company with a positive outlook as the it believes that the health insurance player is poised for strong execution delivering sector-leading performance in the coming months. It has a given it a 'buy' rating in its maiden report on the stock.
 

Niva Bupa is set to capitalise on the growth potential of India's under-penetrated health insurance market. Benefiting from a customer-centric approach and technological capabilities, Niva Bupa has demonstrated a compelling compound annual growth rate (CAGR) of approximately 40% in gross written premium (GWP) between FY20 and FY25. This growth has seen an increase in its retail market share from 4% in FY19 to 9.1% in FY24, climbing further to 9.4% in the first eleven months of FY25, said ICICI Securities.
 

The company's loss ratio has averaged around 58% over the last six years, reflecting strong operational performance. ICICI Securities has expressed a preference for IFRS financials over other metrics, citing better revenue and cost alignment. It projects a significant earnings CAGR of 53% between FY25 and FY27 under IFRS, driven by growth and a better combined ratio.
 

Shares of Niva Bupa Health Insurance Company were listed at the bourses on November 14, 2024 as the standalone health insurance player raised a total of Rs 2,200 crore via IPO offering its shares for Rs 74 apeice. The stock scaled all-time highs of Rs 109.41 in December before hitting lows of Rs 61.01 earlier this month.

Under IFRS, Niva Bupa's profit after tax (PAT) for FY27 is estimated at approximately INR 4.7 billion, with a target valuation of INR 165 billion. A valuation multiple of 35x is applied, higher than some peers, due to anticipated superior earnings growth. "We have given a higher valuation multiple of 35x PE to Niva Bupa versus 30x for Star Health," ICICI Securities stated.

Niva Bupa's claim settlement ratio was an impressive 91.9% in FY24, with efficient processing of cashless claims, enhancing customer trust. The company's diversified distribution channels, coupled with a strong online presence, extend its market reach significantly, said the brokerage.

Backed by experienced management and the support of Bupa Global, Niva Bupa benefits from extensive health insurance and healthcare experience. ICICI Securities notes this as a key strength for the company's sustained market influence.

Niva Bupa's conservative investment management, balancing yield enhancement with liquidity, further solidifies its financial robustness. With a solvency ratio of 303% as of December 2024, the company is well-positioned to maintain its growth trajectory. ICICI Securities has a target price of Rs 90 on the stock, suggesting an upside of 22 per cent from its previous close at Rs 74 apeice.