Multibagger: New India Assurance stock gains 147% in a year; PL expects price to double in 18 months – 5 reasons why
Prabhudas Lilladher sees New India Assurance as a strong player in the Indian general insurance industry, with a focus on new product launches and improving ROE. Backed by the Government of India, the company aims to maintain market leadership and improve combined ratios.
In its latest BEAT report, Prabhudas Lilladher highlighted multibagger insurance stock The New India Assurance Company (New India Assurance) as the leader in the Indian general insurance industry. The company holds the highest market share at 12.78 percent at ₹37,035 crore. With over 105 years of experience and the Government of India holding an 85.44 percent stake, New India Assurance is India's largest general insurance company, said the brokerage.
The current market price of the stock is ₹286.50 and the brokerage expects it to double in the next 18 months to around ₹573.
Stock Price Trend
The stock has more than doubled investor wealth in the last 1 year, rallying almost 147 percent. Meanwhile, it has advanced over 36 percent in 2024 YTD, giving positive returns in 5 of the 7 months so far in this calendar year.
It has jumped over 21 percent in July so far after a 3.6 percent rise in June. The stock fell over 7 percent in May but had risen 8.5 percent in April. March also witnessed a setback with the stock falling almost 12 percent. But, for the first 2 months of the year, it was in the green, up almost 6 percent in February and 16 percent in January.
The stock had hit its 52-week high of ₹324 in February this year. Currently, it is just 11.5 percent away from its year high. Meanwhile, it has soared 149 percent from its 52-week low of ₹115, hit in July last year.
Investment Rationale:
Insurance Penetration in India: Insurance penetration in India, defined as the percentage of insurance premiums relative to GDP, presents significant growth opportunities. According to the Insurance Regulatory and Development Authority of India (IRDAI) annual report, insurance penetration in India decreased from 4.2 percent in FY22 to 4 percent in FY23, significantly lower than the global average of 6.8 percent. Life insurance has broader reach compared to general insurance, which has a penetration rate of only 1 percent, indicating substantial growth potential for the sector, said the brokerage.
General Insurance Industry Growth: The brokerage also noted that the general insurance industry’s GDPI is projected to reach ₹3.7 lakh crore by FY26, a substantial 32 percent increase from current levels. In FY24, New India Assurance maintained its leadership position with a market share of 12.78 percent of the total GDPI, amounting to ₹37,035 crore. The company's segment breakdown includes Fire ( ₹4,394 crore), Marine ( ₹984 crore), Engineering ( ₹1,090 crore), Motor ( ₹9,519 crore), Health ( ₹18,875 crore), and Aviation ( ₹412 crore), it added.
Maintaining Market Leadership: Over the decades, NIACL has maintained its leading position in the Indian general insurance market. It is a leader in sub-segments like fire, marine, engineering, health, and aviation insurance while holding the second position in motor insurance, informed PL. However, over the past year, New India Assurance’s market share has slightly declined due to rising competition from newer insurance players. To counter this, the company is refining its pricing strategy and introducing new products. In FY24, it launched 27 new products, as highlighted in a recent earnings call highlighted the brokerage.
Financial Performance and Strategy: As of FY24, PL pointed out, that the Return on Equity (ROE) for the firm stood at 5.50 percent, down slightly from 5.53 percent in FY23. Management aims to improve ROE to 10 percent in the medium term. The company’s strategy includes increasing market share, improving profit margins by leveraging economies of scale, rationalising operating offices, enhancing digital penetration, and maintaining a healthy solvency margin. The insurer plans to leverage technology to boost customer satisfaction, profitability, and growth, added the brokerage.
Product Mix and Distribution: As per the brokerage, Health & Personal Accident (PA), the fastest-growing sub-segment in the general insurance industry, accounts for 45 percent of New India Assurance’s product mix. The net premium in the health segment increased by 13 percent in FY24, reaching ₹17,795 crore. In the Motor segment (Own Damage + Third Party), the net premium rose by 8 percent in FY24, totaling ₹10,589 crore. The company has established a comprehensive multichannel distribution network that includes individual and corporate agents, brokers, bancassurance partners, and other intermediaries, noted Prabhudas.
In conclusion, Prabhudas Lilladher believes that New India Assurance is well-positioned to capitalise on its leadership in the Indian general insurance industry. The company is expected to benefit from new product launches, robust solvency, and a focus on increasing ROE. With the backing of the Government of India, New India Assurance is poised to sustain its market share, leading to improved combined ratios and solidifying its position as the market leader.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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