HDFC Life, SBI Life stocks rally up to 3% on Gadkari's GST withdrawal plea

Life insurance stocks: While analysts laud the proposal to withdraw GST on life, medical insurance premiums, they suggest investors wait for the Finance Ministry's before taking any investment call

Nitin Gadkari on GST on life, medical insurance: Shares of life insurance companies rallied in trade on Wednesday after Union Minister for Road Transport and Highways, Nitin Gadkari, requested Finance Minister Nirmala Sitharaman to remove the 18 per cent goods and services tax (GST) on life and medical insurance premiums.

While analysts laud the proposal and see it as a sentimentally positive trigger for related stocks, they suggest investors wait for the Finance Ministry's move on it before taking any investment decision.

"It is too early to take an investment call based on the report as it is just a proposal as of now. The final decision rests with the GST Council. If this proposal is considered, I expect the GST rates on premiums to be reduced rather than being withdrawn completely as it would invite similar requests from other sectors," said Deepak Jasani, head of retail research at HDFC Securities.

From an investment standpoint, however, Jasani believes investors may incrementally accumulate life insurance stocks given the overall long-term growth prospects of the sector.

GST withdrawal on life, medical insurance premiums

In a letter dated July 28, Gadkari said GST on life and medical insurance premiums is "proving to be a deterrent for the growth of this segment of business which is socially necessary".

"Levying GST on life insurance premiums amounts to levying tax on the uncertainties of life. The person who covers the risk of life's uncertainties to give some protection to the family should not be levied tax on the premium to purchase cover against this risk.," Gadkari said, representing the Nagpur Divisional Life Insurance Corporation Employees Union.

On the bourses, HDFC Life share price gained 3.12 per cent (Rs 719 per share) intraday, while SBI Life share price added 2.2 per cent (Rs 1,760), ICICI Prudential Life 2 per cent (Rs 739 per share), and Life Insurance Corporation 0.4 per cent (Rs 1,193). By comparison, the NSE Nifty50 index was 0.3 per cent at 1:45 PM.

Independent market analyst Ambareesh Baliga said life insurance stocks seem attractively priced at current levels and it would be the right time to buy related stocks as the proposal, if approved by the GST Council, may give a leg up to the sector.

"Withdrawal of GST on life and medical insurance premiums will be a big boost for the sector as it will make related insurance products cheaper and more attractive to customers, especially households, luring them to increase their exposure to the product. This will also give insurance companies some cushion to hike premiums, boosting their income," he said. Baliga prefers HDFC Life and LIC of India among the lot.

In the April-June quarter of the current financial year (Q1 FY25), New Business Premium (including Individual and Group) stood at Rs 6,400 crore, up 9 per cent year-on-year (Y-o-Y). Including Renewal premium, total premium income was Rs 12,811 crore versus Rs 11,673 crore last year. For SBI Life, NBP grew by 13 per cent Y-o-Y to Rs 7,030 crore in Q1 FY25 against Rs 6,210 crore in Q1 FY24.

"SBI Life guided for 18-20 per cent premium growth and around 28 per cent Value of New Business (VNB) margin for FY25. For reviving the protection segment, SBI Life is working actively with SBI and will launch a protection product on the Yono app. Further, it plans to launch a new product in August 2024 for the HNI segment with higher sum assured. Higher non-medical limits are also being implemented," noted analysts at Motilal Oswal Financial Services.

Going ahead, the brokerage expects SBI Life to deliver an 18 per cent CAGR in Annualised Premium Equivalent (APE)/VNB over FY24-26, while return on embedded value (RoEV) is projected to remain  20 per cent. "We reiterate our 'Buy' rating on the stock with a target price of Rs 1,900," it said.

As for ICICI Pru, analysts at Sharekhan said the strategy of approaching customers with a wider product bouquet through all channels will support APE growth in the medium term.

"The company continues to add and invest in new partnerships, offering a diversified product through a different channel. VNB margins are expected to remain rangebound as pressure on payouts and investment in growth continues," the brokerage in their Q1 FY25 result review report said with a 'Buy' rating and a target price of Rs 800.