Niva Bupa shares get their first ‘buy’ rating but target below post-listing high

Shares of Niva Bupa Health Insurance Company Ltd. will be in focus in Monday’s trading session after global brokerage firm Morgan Stanley became the first one to ascribe a price target of ₹88 on the stock.

Morgan Stanley initiated coverage on the stock with an ‘equal-weight’ rating. The price target for Niva Bupa implies a potential upside of 16% from Friday’s closing levels.

The brokerage firm wrote in its note that Niva Bupa is well-placed to capitalise on secular growth offered by India’s health insurance industry, and will be among few to deliver mid-teens IFRS return on equity (ROE) amid an intense competition.

However, the upside potential appears limited.

Key projections from Morgan Stanley include:

– A 24% compound annual growth rate (CAGR) in gross direct premium income (GDPI) from FY24 to FY29, with a total health market share gain of 130 basis points.

– An improvement in the combined ratio (Indian GAAP) from 98.8% in FY24 to 95.3% in FY29, driven by scaling operations.

– A 61% CAGR in profit after tax (PAT) under Indian GAAP during the same period, with an 18% ROE by FY29.

– A 49% CAGR in PAT under IFRS, reaching over 15% ROE by FY29.

Niva Bupa shares made its market debut on November 14 last month to list at a premium of 6% over its initial public offer (IPO) price of ₹74.

The Delhi-based insurance company raised a total of ₹2,200 crore via the public issue, which included a fresh share sale of ₹8,000 crore and offer-for-sale (OFS) of up to 189,189,189 shares worth ₹1,400 crore.

Incorporated in 2008, Niva Bupa Health Insurance Company is a joint venture between the Bupa Group and Fettle Tone LLP that provides insurance in the health sector. It offers a holistic proposition by providing customers access to a comprehensive health ecosystem and service capabilities through its Niva Bupa Health mobile application and website.

As of November 13, 2024, promoters held a 55.98% stake in the health insurer.

Shares of Niva Bupa Health Insurance Company Ltd. settled 5.11% lower on Friday at ₹75.70. The stock is almost flat as against the issue price and has recovered 9% from its 52-week low price of ₹69.20 on November 18.