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HDFC life: The company recorded strong growth in Q4FY21, total premium came in at Rs. 12,910Cr, growing by 34%/21% Q-o-Q and Y-o-Y. Regular premium collections grew at 35%/39% Q-o-Q and Y-o-Y, single premiums grew as well after a fall in Q3, growing at 27%/24% Q-o-Q and Y-o-Y. NBP came in at Rs. 6,559Cr, posting strong growth of 30%/29% Q-o-Q and Y-o-Y. APE for Q4 was Rs. 2,882Cr, growing by 33%/37% Q-o-Q and Y-o-Y. VNB came in at Rs. 777Cr with VNB margin improving to 27% in Q4. share of protection in APE was 13.3% in Q4 improving 69bps Q-o-Q, however it remains well below last years number of 17.2%. E.V was Rs. 26,617Cr growing 6.3% Q-o-Q, RoEV improved as well to 18.5% from 18.3% in Q3

For FY21, Total premium came in at Rs. 38,583Cr growing by 18% from FY20. New business premium for the year was at Rs. 20,106Cr, up by 16.6% from FY20. APE was at Rs. 8,372Cr, recording a growth of 13% for the year. VNB was Rs. 2,185Cr, VNB margin for the full year was 26.1% up from 25.9% in FY20. Margin growth was driven by increased contribution of traditional products and retail protection. We anticipate this margin to be sustained as ULIP’s recover and share of protection improves. Share of protection in APE was 12.8% in FY21, down from 17.2% in FY20 as group protection has been subdued through the year. E.V was Rs. 26,617Cr, up 29% from the previous year, this is primarily due to a lower base in FY20. We expect EV growth will normalize to ~18% going ahead. AUM for FY21 was at Rs. 1,73,839Cr, up 36.6% from FY20. Strong capital market performance was the main driver. The company has a sufficient solvency ratio of 201%, it has created a reserve of Rs 165Cr for FY22 for covid related mortality. Claims settlement ratio was 99.4% for FY21.

Long term strategy remains stable, Focus on Annuity business

The long term strategy of the company remains largely stable, management has reiterated their focus on improving distribution to larger geographies and maintaining a diverse channel mix. Product strategy will continue to emphasize a balanced mix, the company will develop and push new products based on consumer preferences. Management has indicated that the company will follow a cautious approach to underwriting new business, this is to prevent undue risk on their balance sheet. The company will focus on growing its annuity business going ahead, as they consider the retirement business to be a major driver in the future. Annuity business grew by 46% in FY21.

Outlook and valuation

HDFC life has recorded industry beating growth in FY21, the company’s focus on a balanced product mix aided in sustaining its margins despite the pandemic. However, we are mindful of its high valuations, HDFC life trades at a TTM P/EV of 5x, while its peers are in the 2.5-3x range. Keeping this in mind, we value the stock at a P/EV of 4.3x based on FY23E to arrive at our target price of Rs. 782 and assign a “BUY” rating.

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