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Stable top-line growth; expansion continues: HDFC Life premium income growth in Q1FY24 remained moderate and in line with expectations at 17% YoY which was driven by single premium growth of 24% YoY. Net commission costs increased as the focus remains on increasing the agency network and expanding geographically. Annualized Premium Equivalent (APE) increased by 13% YoY which was driven by increase in individual APE growth of 12% YoY. Value of new business (VNB) growth was decent at 18% YoY as the focus remains on increasing the market share.

Uptick in protection and ULIP plans: The product mix remains balanced with uptick in protection and ULIP plans. With regards to APE, ULIP and protection plans increased by 100bps each and on NBP basis protection plans increased by 500bps. The management believes that the uptick in protection plans is sustainable in the long run as it sees interest amongst customers for the protection plans.

Margins slightly under pressure: VNB margins in Q1FY24 was 26.2% which declined by 307bps QoQ. The decline in margin was mainly due to increasing proportion of protection plans in the product mix. The management estimates VNB margin to see improvement going forward as the business grows and guided VNB margin at ~30% in FY24E

Growing bancassurance and agency distribution network: On an APE basis, the bancassurance channel saw a growth of 500bps YoY to 61% in policy sales which can be attributed to the merger of parent entity and HDFC Life becoming direct subsidiary of HDFC Bank. Agency network increased by 400bps YoY as the company plans to increase its distribution reach by adding more agents. The management believes that the agency network will continue to see growth going forward as it penetrates geographically.

Increasing market share: The private insurer’s market share in the individual WRP was 16.4% as against 15.8% in Q1FY23 while the New Business Premium market share was 21.3% increasing from 19.7% in Q1FY23. The company has seen increase in market share with regards to both product mix and distribution mix. The management remains focused on increasing its market share and remain the top 3 insurance company. The company aims at increasing its market share in individual policies as the margin remains higher.

Valuation: We remain positive on HDFC Life Insurance as it is seeing growth on all its product segments. The company is seeing improvement on market share and also its persistency ratio going higher. The growing support from its parent bank will benefit the company in the long run as it will provide cross-selling opportunities which will derive more business going forward. The company believes that the coming quarters in FY24 will see growth in all fronts and remains positive on the growth outlook. We estimate APE/NBP/VNB to grow at a CAGR of 17%/20%/26% over FY23-25E. We maintain a Buy rating on the insurance company while increasing our target price upwards to Rs 779. We value the company based on 3x of its FY25E embedded value per share.

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