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Result Highlights

* NBP – NBP was at Rs 37.7bn was in line with our estimate and registered a growth of 43.6% yoy, The growth was a contribution of strong of 55% yoy in single premium and healthy growth of 26% in First year premium on yoy basis.  

* APE – APE at Rs 15.6bn was lower than our estimate of Rs16.7bn. APE growth was at 30.1% yoy. Growth was driven by strong performance across all product classes except protection which was flat.

* APE Mix – Share of Non‐Par business jumped 574bps. This was offset by decline of 111bps, 83bps and 179bps decline in share of ULIPs, Par and Individual Protection respectively.  

* VNB & VNB Margin – Q1 FY22 VNB at Rs4.1bn was lower than our forecasts of Rs4.4bn, while VNB margin at 26.3% was in line with our estimates. On a yoy basis VNB margins improved by 202bps and sequentially margins declined by 70bps.  

* EV –EV stands at Rs273bn, a growth of 21% on yoy basis.  

* Profits  ‐  PAT came at Rs3bn, declining by 32.9% on yoy basis and 5.2% sequentially.

* Valuations ‐ The stock currently trades at FY23E P/EV of 3.7x

Our view:

HDFC Life performance in Q1 FY22 was broadly in line with estimates. Reserving of Rs7bn for COVID claims seems adequate currently. However, a third wave of COVID can be detrimental. Company has calibrated its approach towards protection business considering the risks associated with. The focus is on non par and annuity products. For the remainder of the year we are working with a 13% APE growth and 16% VNB growth, which is fairly achievable. During FY21‐24E we expect APE CAGR of 14.4% and VNB CAGR of 17.8%. Based on discounted VNB approach to valuation we arrive at a fair value of Rs769. Retain ADD rating.

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