IGI Logo

Levers exist for accelerating growth

Growth levers ahead for HDFC Life include: (1) increasing HDFC Bank channel share, and (2) maximising reach in tiers-2/3 cities and beyond with channels like Exide Life / India Post Payment Banks / AU Small Finance Bank. Additionally, there is notable improvement in volumes and outlook on retail protection. We therefore remain positive on the company. Risks include: lower demand in highmargin segments such as non-par and protection and volatile interest rates movements

* Maintain BUY with a revised target price of Rs740 (Rs755 earlier) based on 3.5x FY24E EV. Higher multiple compared to peers are driven by it’s track record of 24% CAGR in VNB between FY17-FY22. We have changed our valuation method from VNB to EV multiple considering the volatility in interest rates / equity markets, which impacts EV (more so with higher non-par mix). We factor-in a VNB margin of 27%/30% with APE growth of 19%/15% for FY23E/FY24E. This will likely result in an EV of Rs453bn by FY24E adjusted for variances (we take into account a likely impact of 100bps increase in interest rates in each year of FY23E and FY24E based on sensitivity to EV).

* Idea of growth acceleration on becoming bank subsidiary gains traction. HDFC Life could gain market share within the HDFC bank c hannel post the merger of HDFC Bank and HDFC Ltd as per the management. We also expect HDFC Life to benefit from the Exide Life merger, which can improve productivity of the agency channel

* Margin neutrality defines VNB margin expectations for FY23E; outlook remains strong. We factor-in 27% margins for the merged entity in FY23E and 30% in FY24E vs standalone margins of 26.7% in FY22. The margin increase assumption takes into account a combination of merger synergies (more than 20% of the branches of the combined entity can potentially be closed), increase in protection (retail as well as group) and increase in persistency

* Product mix remains balanced; non-par savings/credit protect drive APE, VNB and VNB margin in 9MFY23: Basis 9MFY23 individual APE, HDFC Life’s non-par / annuity mix improved to 39% / 6% from 33% / 5% in FY22. ULIP / protection / PAR mix dipped to 21% / 4% / 29% in 9MFY23 vs 26% / 6% / 30% in FY22, respectively. Overall protection APE grew 31% YoY in 9MFY23 led by strong 52% growth in the credit protect business across 300 partnerships. Growth in retail protection remained tepid on YoY basis but sequentially grew by 13% in Q3FY23. Overall protection APE grew more than 20% YoY and management expects individual protection to continue picking up in the coming quarters.

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

SEBI Registration Number INZ000183631

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer