Buy HDFC Life Insurance Ltd For Target Rs. 625 - Yes Securities Ltd
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Result Highlights
* VNB margin: Calculated post-merger VNB margin grew by 243bps QoQ (comparable) but de-grew -8bps YoY (non-comparable) to 29.3%
* VNB: The post-merger VNB growth was 72.7% QoQ (comparable), aided by strong growth in APE and improvement in VNB margin
* APE: The post-merger APE was Rs 51,620 mn as against APE of Rs 32,600mn in 3QFY23 (comparable) and Rs 30,490mn in 4QFY22 (non-comparable)
* Expense control: Post-merger Expense ratio increased 119bps QoQ to 20.8% as opex ratio increased 28bps QoQ and commission ratio by 90bps QoQ
* Persistency: Post-merger, 37th month ratio rose 360bps QoQ to 71.5% and 61st month ratio rose 340bps QoQ (numbers comparable sequentially)
Our view – Growth encore in FY24 no easy task
Delivering healthy APE growth on the high base of FY23 will be no easy task: The 11M growth of 15-16% for individual WRP is indicative of underlying growth bereft of any pre-buying impact since there was negligible impact of the same in February. The growth in the full year FY23 stood at 27% YoY, driven by the impact of pre-buying in the month of March 2023. The share of large-ticket products with annual premium greater than Rs 0.5mn amounted to 35% in the month of March. This pulled up the share for large-ticket products for FY23 to about 12-14% compared with 10-12% for 9M and similar for 11M.
Management stated that it is confident of delivering VNB growth in line with APE growth, with stable margin in FY24: Healthy traction for retail protection and credit life should be supportive for margin. The cost related to Exide Life is now in the base but Project Inspire would lead to higher cost with impact on margin.
The allowance by RBI for HDFC Bank to own more than 50% stake in HDFC Life clears uncertainty: Importantly, the current counter share is about 57-58% and the intention, as per discussion, is to take it to 70%. The fact that HDFC Bank is opening branches in Tier 2 and 3 centres will also aid the growth of HDFC Life.
We maintain a less-than-bullish ‘ADD’ rating on HDFL with a revised price target of Rs 625: We value HDFL at 3.0x FY24 P/EV for an FY24E/25E RoEVprofile of 19.8%/20.2%.
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