HDFC Life Q1 Result Review: Value Of New Business To See Growth, Say Analysts
Margin decline in first quarter was largely due to product-mix changes in favor of ULIP, said Emkay Research.
HDFC Life Insurance Co.'s annualised premium equivalent growth is expected to be driven by its bancassurance channel, particularly through HDFC Bank Ltd. and the agency channel, with an increase in productivity and market share.
Bancassurance is a relationship between a bank and an insurance business that aims to provide insurance products or services to the bank's clients.
APE growth will be led by the sustained higher productivity in HDFC Bank and the agency channel, according to Emkay Research. The company also plans to increase the counter share in HDFC Bank channel to 70–72%, Nuvama said.
Citi Research, Emkay, Nuvama and Motilal Oswal Financial Services Ltd. have a 'buy' rating on the stock and target prices between Rs 735 to Rs 780.
APE growth of 23% YoY at Rs 2,866 crore slightly exceeded expectations. Individual APE surged 31% YoY, while Value of New Business grew 18% YoY. However, given the stronger-than-expected APE growth, VNB margin contracted more than expected.
The marginal miss in VNB was attributed to changes in product mix and other operational factors. Despite the margin pressures, all brokerages expect the company to sustain or improve VNB growth over the coming years. "The margin decline in Q1 was largely due to product-mix changes in favor of ULIP," said Emkay Research.
The brokerages highlighted the management's confidence in doubling VNB over the next four years and its strategies to mitigate margin pressures, such as tweaking distributor payouts and focusing on non-par products.
"Management provided comfort on underlying surrender assumptions and alluded to distribution payout tweaks to alleviate margin pressure," Citi said in its report.
Here is what brokerages have to say about HDFC Life's first quarter result.
Citi
Maintained a 'buy' rating on the stock and a target price of Rs 735 apiece.
Value of new business' margins 70 basis points lower than Citi's estimates.
Higher-than-expected unit-linked insurance plans mix contributed to margin pressure.
Capacity additions, revival in non-par and focus on volume augur well.
Comfort on underlying surrender assumptions, distribution payout tweaks to alleviate margin pressure.
Rollover estimates to June 26 to arrive at target price.
Have a pair trade open: HDFC Life as 'overweight' and ICICI Prudential Life Insurance Co. as 'underweight'.
Emkay
Reiterated a ‘buy’ rating on the stock and a target price of Rs 750 apiece, implying a potential upside of 18% from the previous close.
Annualised Premium Equivalent came in 4% above estimates.
APE growth offset margin miss, leading to 2% beat in VNB.
Management is confident of doubling the VNB over the next four years.
Expects VNB and APE growth through HDFC Bank and the agency channel firing up.
Estimates increased APE, reduced margins and unchanged VNB.
Valuations based on 2.5 times FY26E price to embedded value.
Nuvama
Raised target price to Rs 780 apiece, against earlier Rs 760, implying a potential upside of 22% from the previous close.
Strong ULIP sales drove growth, 1% below estimates.
VNB came in 0.7% below estimates.
Shift in product mix towards linked products drove down margins.
Continued to be focused on growth and willing to forego margins.
Higher surrender values rules to have limited impact on margins.
Revising FY25E/26E VNB by 0.5%/2.5%.
Valuations for FY25E price to embedded value of 3 times.
Shares of the company were trading 1.45% lower at Rs 636.70 apiece, compared to a 0.22% advance in the benchmark NSE Nifty 50 as of 10:20 a.m.
