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Individual Protection makes a comeback on sequential basis

Result Highlights

VNB margin: Calculated VNB margin grew by 263bps QoQ and 238bps YoY to 29.4%

VNB growth: VNB growth was 29.0%/15.2% QoQ/YoY significantly outpacing the growth in APE

APE growth: New business APE growth was 17.4%/5.8% QoQ/YoY driven, sequentially by Par, Non-par protection, ULIP and Annuity business

Expense control: Expense ratio rose 43bps/63bps QoQ/YoY to 17% as opex ratio rose 27bps/93bps QoQ/YoY

Persistency: 37th month ratio rose/declined 120 bps QoQ/-930bps YoY to 67% whereas 61st month ratio rose/declined 330 bps/-10 bps QoQ/YoY to 54.4%

Our view – Individual Protection makes a comeback on sequential basis

On a sequential basis, Individual Protection has made a comeback although Protection new business is still lower on a YoY basis: Individual Protection APE of Rs 1555mn was up 64% QoQ but 9.7% lower YoY. This shows Individual Protection is starting to rehabilitate on sequential basis after extreme caution till the conversations with the reinsurers were playing out. Other parts of individual business also contributed with Annuity, Par and Non-Par Savings rising 20.5%, 20.5% and 15% QoQ, respectively. Group business was sluggish, growing 2.5% QoQ.

Rise in share of Individual Protection had aided a healthy VNB margin expansion to 29.4% for the quarter: Share of Individual Protection rose 145 bps to 5.1% for the quarter. Share of Annuities, another product of reasonably attractive margin, inched up 11 bps to 4.2% for the quarter. Share of Non-Par Savings, however, dipped 60 bps QoQ to 28%. This could reverse in the near term as the Single Pay Non-Par Savings product is simpler to hedge and can be sold in greater quantum.

We maintain ‘ADD’ rating on HDFL with a revised price target of Rs 605: We value HDFL at 3.7x FY23 P/EV for an FY23E/24E RoEV profile of 16.8/16.9%.

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