Add HDFC Life Insurance Company Ltd For Target Rs.776 - Yes Securities
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HDFL focuses on areas other than retail protection for margin sustenance
Result Highlights
* VNB margin: Calculated VNB margin grew by 23bps QoQ and 87bps YoY to 26.5%.
* VNB growth: VNB growth was healthy at 64.9%/23.6% QoQ/YoY broadly mirroring the growth in APE
* APE growth: New business APE growth was strong at 63.4%/19.5% QoQ/YoY driven by all segments, barring Individual Protection
* Expense control: Expense ratio declined 38 bps QoQ but rose 108 bps YoY to 16.3% as opex ratio declined 82 bps QoQ but rose 84 bps YoY
* Persistency: 37th month ratio declined/rose 120 bps/230 bps QoQ/YoY to 63.5% whereas 61st month ratio improved 130 bps/670 bps QoQ/YoY to 52.9%
Our view –
HDFL focuses on areas other than retail protection for margin sustenance Management said the overall VNB margin will remain protected even in the face of reinsurance rate hike as there are multiple levers to pull in this regard: Importantly, management flagged that credit life has a similar margin to retail protection. Group protection NBP has grown as 108% YoY in 1HFY22, driven by credit life as HDFL has not been focusing on GTI.
Growth for Individual Protection was 29.6% QoQ and -1.4% YoY as HDFL continued to remain cautious on this business: In a slight departure from recent commentary, management did not sound particularly bullish on ROP product and added that ROP formed about 17-18% of retail protection. While Non-Par Savings grew 66.6%/23.3% QoQ/YoY, management does not want the share of this business to rise too high, given interest rate risk. Linked business growth at 52.7% QoQ was slightly slower than overall growth QoQ and management emphasized that the share of ULIPs in individual new business APE (at 26% in 1HFY22) remained lower than other key peers. Annuities remained a structural growth area, growing 62.4%/20.2% QoQ/YoY.
We maintain ‘ADD’ rating on HDFL with a revised price target of Rs 776: We value HDFL at 4.3x FY23 P/EV for an FY22E/23E/24E RoEV profile of 15.9/18.2/18.0%.
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