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In line result; VNB margin stood robust

Persistency trends steady

HDFCLIFE reported a 11% YoY growth in premium, led by a 16% growth in renewal premium and an 8% growth each in single/first-year premium. Persistency trends remain steady, with 13th/61st month persistency improving 200bp/500bp YoY to 92%/58%. Shareholder’s PAT grew 12% YoY to INR3.6b (in line).

VNB growth stood at 15% YoY (~8% beat), with VNB margin expanding to 29.4% (+263bp QoQ). EVOP grew 19% YoY in FY22 (16.6% growth after considering an excess mortality reserve of INR6.5b).

On the APE front, the Individual Protection business stood flat YoY v/s a 1% YoY growth in FY22, while strong trends continued in Annuity and the NonPAR Savings business. The ULIP business saw a healthy 24% YoY growth.

We expect HDFCLIFE to deliver ~29% VNB CAGR over FY22-24 and estimate margin to remain ~29% by FY24. We maintain our Neutral rating

Net premium grows 11% YoY; VNB beats our estimate

HDFCLIFE reported an 11% YoY growth in net premium income (in line). The renewal business grew 16% YoY (in line), which reflects steady trends in persistency across cohorts. Shareholder’s PAT grew 12% YoY and 31% QoQ to INR3.6b (inline).

Individual/Group APE grew by ~5%/~9% YoY, leading to total new business APE growth of ~6%. Within total APE, ULIP grew 16% YoY, while Non-PAR Savings grew 15%. Growth in Protection stood stable and the segment’s share in Individual/total APE stood at 6.3%/13.2%, while the ULIP mix in Individual APE stood at 26%.

VNB growth stood at 15% YoY (~8% beat), with VNB margin expanding sharply to 29.4% (+263bp QoQ). VNB grew 22% YoY in FY22, with VNB margin at 27.4% v/s 26.1% in FY21. Total operating expenses (including commissions) grew 15% YoY. Total expense ratio rose 40bp QoQ to 16.8%.

On the distribution front, the share of banca/agency channel in Individual APE moderated by 160bp QoQ each to 61%/14%, while the share of the direct channel improved by 320bp QoQ to 19%.

Embedded value: EVOP grew 19% YoY in FY22 (a growth of 16.6% post the impact of excess mortality reserve of INR6.5b). Overall, embedded value grew 13% YoY to INR300.5b (INR329.6b including Exide Life).

Others: a) Total AUM grew 17% YoY to INR2.04t, b) The company has unutilized reserves of INR0.55b as of 4QFY22 towards potential COVID-19 claims, and, c) Solvency ratio fell to 176% v/s 190% in 3QFY22 as the company paid INR7.26b in cash towards the acquisition of Exide Life

Highlights from the management commentary

With the merger with Exide Life, the management aims to remain margin neutral. However, scope exists to touch 30% over the next two-years, assuming no change in regulations and no loss in market share.

It launched several products to meet diverse customer needs – Sanchay FMP in Non-PAR savings, a regular pay deferred Annuity plan, and a Term variant with riders covering the 3Ds of death, disease, and disability.

The management aims to grow Individual Protection in double-digits in FY23. For this, HDFCLIFE is developing tools for automated underwriting, video medical checks, and tech to measure BMI, heart rate, and other vitals.

Valuation and view

HDFCLIFE remains focused on maintaining a balanced product mix across businesses, with an emphasis on product innovation and superior customer service. In the near term, Non-PAR/Annuity is likely to witness healthy growth, while Protection will witness a gradual recovery over FY23. Demand for ULIP remains healthy, but growth depends on how the capital market performs. Persistency trends remain steady and will continue to aid robust renewal trends. We estimate VNB margin ~29%, enabling 29% VNB CAGR over FY22-24. We expect operating RoEV of ~20% in FY24. We maintain our Neutral rating with a TP of INR650/share, corresponding to 2.8x FY24E EV.

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