HDFC Life : Strong Performance, beats estimates - Yes Securities
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Add HDFC Life Ltd For Target Rs.721
Strong Performance, beats estimates
* NBP – NBP was at Rs50.5bn and registered a growth of 19%, which was in line with our estimate. The growth was a contribution of sharp 22% jump in single premium and healthy growth of 15% in First year premium on yoy basis.
* APE – APE at Rs21.5bn was higher than our estimate of Rs20.8bn. APE growth was at 18% yoy and remained flat on sequential basis. Growth was mainly led by jump of 122% in par business.
* APE Mix – Share of Par business jumped 1520bps. This was offset by decline of 691bps, 348bps and 317bps decline in share of ULIPs, Non‐par and Individual Protection respectively.
* VNB & VNB Margin – Q3FY21 VNB at Rs5.7bn was higher than our forecasts of Rs5.3bn, while VNB margin at 26.4% was ahead of our estimates of 25.2%. On a yoy basis VNB margins improved by 184bps and sequentially margins improved by 79bps.
* Persistency improvement – On a yoy basis, persistency improved across all time periods except 61st month. Sequentially, persistency for 25th Month,49th month and 61st month saw a decline.
* Opex and commission ratios – HDFC Life continued to demonstrate its cost efficiencies with cost ratios falling further. Commission ratios declined by 24bps yoy whereas opex ratio improved by 28bps.
* EV – Sequentially EV improved by Rs17bn (7%) to Rs250.5bn. Economic variance saw a positive movement of Rs15.7bn.
* Profits ‐ PAT came at Rs2.6bn, growing by 5.3% on yoy basis and declining by 19.6% sequentially.
* Channel Mix – Mix of Banca channel increased by 1077bps on YoY basis and 705bps on qoq basis.
* Change in forecasts – 9MFY21 APE is 75% of our FY21 estimates and 74% VNB share of our forecasts.
* Valuations ‐ The stock currently trades at FY23E P/EV of 4x.
* Our view: HDFC Life has outperformed private players in the current fiscal in terms of premium growth. However, its product mix has shifted towards lower margin products such as par. With pick up in ULIPs and concious strategy to reduce non‐par business to bring a balance in product mix coupled with stricter underwriting in pure term business, VNB margin expansion will be a challenge. Stock trades at FY23E P/EV of 4x which is significantly higher than other players. While we believe that HDFC Life deserves premium valuations given its balanced product mix, strong distribution network and group’s track record of delivering healthy performance in all financial segments, current valuations are fair and we retain our ADD rating with a revised 1‐year price target of Rs721.
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