IGI Logo

Persistency ratios inch up

* HDFC Life Insurance (HDFCLIFE) posted a healthy 4QFY23 performance with a strong beat in both APE and VNB. Premium growth was healthy driven by both renewal premium (+26% YoY) and new business premium (+47% YoY).

* APE rose 69% YoY to INR51.6b (26% beat) in 4QFY23 propelled by Non-PAR, PAR and Group businesses. Demand for ULIP was soft due to volatile capital markets while trend in protection improved QoQ.

* VNB too rose 69% YoY (26% beat) with margin expanding 240bp QoQ to 29.3%. Embedded Value (EV) grew 5% QoQ to INR395b during the quarter.

* We estimate HDFCLIFE to deliver ~20% VNB CAGR over FY23-25 and margin would improve to ~29% by FY25. Reiterate Neutral with a TP of INR610 (premised on 2.4x Sep’24E EV).

Protection trends improving; operating RoEV at 19.7% in FY23E

* HDFCLIFE’s total premium rose 36% YoY to INR196b (8% beat) within which new business premium grew 47% YoY while renewal premium rose 26% YoY, aided by higher persistency across cohorts. PAT was flat YoY at INR3.6b (12% miss) in 4QFY23. The FY23 PAT was up 13% YoY to INR13.6b.

* Total APE grew 69% YoY to INR51.6b (26% beat) in 4QFY23 with individual APE rising 75% YoY. Within total APE, Non-PAR spiked 157% YoY in 4QFY23 (driven by higher demand due to budgetary changes) while Group/PAR segment rose 104%/34% YoY. Protection was up 19% YoY and is witnessing healthy sequential trends. ULIP segment declined 1% YoY in 4QFY23.

* VNB grew 69% YoY to INR15.1b (26% beat) with FY23 VNB at INR36.7b (+37% YoY). VNB margin improved ~240bp QoQ to 29.3%, driven by an optimal business mix. VNB margin stood at 27.6% over FY23.

* On the distribution front, the share of banca moderated to 51% while agency channel constituted 23% share. This increase was at the cost of direct channel as it continues to face headwind in the form of heightened competition; its share moderated to 10% in 4QFY23 from 19% in 4QFY22.

* Operating return on EV came in at 19.7%. Total EV grew 5% QoQ to INR395b. Total AUM increased 17% YoY to INR2.4t while solvency ratio stood at 203% (600bp QoQ decline).

Highlights from the management commentary

* Protection and annuity to be the key growth drivers that will see a healthy trend in FY24E on adjusted base (INR10b due to a bump up in Mar’23).

* Counter share at HDFC Bank should start inching up going ahead (70%). It expects to see a sequential growth on a sustained basis for the same.

* For FY24E, management is confident of VNB growth to be in line with APE growth leading to stable VNB margin. While over the longer term, there will be margin expansion.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer