Buy Niva Bupa Health Insurance Ltd For Target Rs. 100 by Motilal Oswal Financial Services Ltd
Citius, Altius, Fortius!
Gaining market share in the retail health space
* Niva Bupa Health Insurance (Niva) has emerged as one of the fastest-growing health insurers, delivering a CAGR of ~34% during FY22-25 and garnering the highest incremental market share in the retail health segment. We expect the growth momentum to remain strong and estimate a CAGR of 25% in gross written premium (GWP) over FY25-28E (Pre 1/n).
* Niva has a diversified product mix, with retail/group health accounting for 68%/31% as of 9MFY25. In the group segment, a one-third contribution comes from corporates and the remaining from credit-linked products. Consistent innovations and right pricing will boost momentum in its retail health segment (33.5% CAGR in FY22-24).
* Among standalone health insurers (SAHIs), Niva has one of the best claim settlement ratios (90% in FY24) thanks to its efficient claim management process, focus on transparency, quick AI-powered claim settlement, and high-quality healthcare network.
* Niva has undergone a digital transformation to enhance customer experience in areas of policy management, claims tracking, telemedicine, etc. These initiatives should help the company expand its reach, attract tech-savvy customers, reduce operational costs and improve servicing capabilities.
* The company has a well-diversified distribution model, with agents/corporate agents/ brokers/direct contributing 30%/28%/29%/13% of the mix in 9MFY25. While agent productivity has been one of the highest levels in the industry, its strong relationships with brokers, banks and web aggregators have helped Niva de-risk its mix.
* Niva benefits from an experienced management team and the strategic support of the global health conglomerate, Bupa. This association provides underwriting expertise, extensive experience in insurance and strong distribution management, which in turn boost the company's financial stability and growth prospects.
* We expect the company to report a CAGR of 25%/32% in pre-1/n GWP/PAT over FY25-28. We initiate coverage on Niva with a TP of INR100, based on 40x FY27E P/E on IFRS PAT.
Citius – Growing “faster” than the industry
* Niva has delivered better growth than the insurance industry in health GWP/ retail health GWP with a CAGR of 34%/27% over FY22-25 (2x industry average). In FY25, there was an impact of 1/n accounting but the company performed better than the industry, with 20%/15% YoY growth in health/retail health.
* The company reported 23% YoY growth in lives covered with retail health policies to ~5m in FY24, which was faster than SAHIs and the industry.
* Niva has maintained strong growth in retail health insurance, driven by (a) superior customer experience, (b) growing agency force, (c) rapidly expanding hospital network, (d) innovative products, and (e) faster claim settlement.
* We expect the strategic emphasis on retail health, expanding customer base and continued innovation of products to continue to drive growth in premium for Niva. Excluding the impact of 1/n accounting, we expect Niva to deliver a CAGR of 25% in GWP over FY25-28.
Altius – “Higher” standard of customer servicing
* Niva’s customer-centric approach has helped the company garner a significant market share of 9.4% in retail health, making it the third largest retail health player in the country.
* It has maintained a claim settlement ratio of 90%+ consistently over the years and is one of the two SAHIs with 100% of claims paid out in less than three months for the past two years.
* Niva has one of the largest hospital networks, with 10,000+ hospitals providing cashless treatment, thereby presenting a more attractive claim settlement method compared to the claim reimbursement process.
* Among SAHIs, Niva has one of the highest ticket sizes for policies sold by the agency channel, reflecting the success of comprehensive training, incentive structure and digital tools in enhancing agent productivity. During 9MFY25, GWP per policy sold by agents, excluding 1/n impact, stood at INR25,097 (INR24,324 in 9MFY24).
Fortius – Focus on “strengthening” profitability
* Niva has been able to optimize its cost structure through advanced technology integration, efficient claims management and low-cost distribution channels. Niva’s claim ratio is the best in the industry at 59.4% (as of FY24). During 9MFY25, the claim ratio was 63.4%, largely flat YoY.
* Solvency ratio of 300%+ (9MFY25) reflects an adequate capital buffer, giving Niva a strong position to withstand financial stresses and absorb shocks without compromising on its claim payout capability.
* Bupa's global expertise in health insurance, its financial stability, and its extensive resources ensure that Niva has access to global best practices, advanced technology, and a deep pool of knowledge in healthcare management. The association with Bupa, as well as a management with decades of experience, offers reassurance to customers about the quality of coverage and services.
Valuation and View
* We believe Niva has a strong position to harness the growth opportunity in the health insurance industry, backed by product innovation and customer base expansion. Investments in technology will give results in terms of operational efficiency and better profitability.
* Excluding the 1/n impact, we expect Niva to report FY25-28E GWP/PAT CAGR of 25%/32%. While the claim ratio is expected to rise with scale, operational efficiency will offset the impact, leading to a pre-1/n combined ratio of 93.4% in FY28 (from 98.8% in FY24).
* On IFRS basis, we expect a CAGR of 27%/34% in insurance revenue/PAT over FY25-28. We initiate coverage on the stock with a TP of INR100, based on 40x FY27E P/E on IFRS PAT.
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