HDFC Life Confident In Growth Strategy Amid Margin Pressure

HDFC Life's management is confident in their strategy to capitalise on strong growth momentum while adapting product offerings to meet customer demand. 

“We are fairly happy with our growth in H1, which has been consistent at 31% growth in Q1 and Q2,” said Vibha Padalkar, Managing Director and CEO.

Although, this comes after the company missed Bloomberg analyst estimates for this quarter. The insurer posted a net profit of Rs 433 crore in the quarter versus estimates of Rs 543 crore.

The CEO expressed optimism that the current trend in unit-linked products reflects broader market dynamics and predicted that margins will revert to the range of 25-26%.

Padalkar noted that the company is expanding market share, saying, “Our market share has expanded to 16.3%, and I am happy to share that we have reached a new watermark of 11% market share in the overall industry for the first time.” 

She also said that they expect the company to end the year at at least 20% annual premium equivalent growth. 

Additionally, she said that the value of new business grew by 17% year-on-year, projecting it to remain in the range of 15-17% for the full year.

However, the insurer's margins have experienced some softness, attributed to the increased proportion of unit-linked products, which now make up about 33-36% of the business compared to 28% the previous year. 

“This shift is partly responsible for the decline in our VNB margin, which fell to 24.3% from 25.1% in the preceding quarter. It’s important that we prioritise new business growth, followed by value of new business growth, and margin will be an outcome,” Padalkar said. 

On the earnings front, HDFC Life reported a 15% year-on-year rise in net profit for the July-September quarter, reaching Rs 433 crore. This figure fell short of analysts' expectations, which averaged Rs 543 crore, according to a Bloomberg poll. The company's net premium income rose by 12% year-on-year to Rs 16,570 crore, up from Rs 14,756 crore in the same period last year.

“Over 70% of the new customers we added this year are new to HDFC Life, which revalidates our strategy to get customers through the door,” she said. 

Padalkar also expressed confidence in the company’s ability to recover margins, noting, “We are fairly confident that our sales teams can switch to various other products that we have in our arsenal depending on market conditions, and as that happens, margins can only move upwards from there.”

• Net profit up 15% at Rs 433 crore (Bloomberg estimate: Rs 543 crore).

• Annualised premium equivalent grew 26.7% to Rs 3,858 crore.

• Value of new business advanced 17.1% to Rs 968 crore.

• VNB margin declined to 24.3% from 25.1% (QoQ).

HDFC Life's solvency ratio slipped to 181%, compared to 186% in the June quarter. The 13th month persistency ratio fell to 82.5% from 84%, whereas the 61st month persistency ratio improved to 67.9% from 51.4% in the year-ago period.

HDFC Life stock rose as much as 2.39% during the day to Rs 731.35 apiece on the NSE. It was trading 1.78% higher at Rs 726.95 apiece, compared to a 0.03% decline in the benchmark Nifty 50 as of 10:25 a.m. 

It has risen 15.01% in the last 12 months and 12.15% on a year-to-date basis. The total traded volume so far in the day stood at 4.3 times its 30-day average. The relative strength index was at 53.73.

Twenty six out of the 32 analysts tracking the insurer have a 'buy' rating on the stock, five recommend a 'hold' and one suggests a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 10.8%.