IGI Logo

Management expects APE growth to drive VNB growth

Our view – Declining ULIP share to somewhat offset impact from surrender regulation

VNB margin – Some factors would serve to offset some of the damage that would be inflicted by the surrender charge regulation: Calculated VNB margin for the quarter degrew by -105bps QoQ and -115bps YoY to 25.1%. There was a positive impact of ~30 bps due to fixed cost absorption, which was more than offset by a negative ~130 bps impact due to change in product mix. The product mix impact was mainly due to the rise in share of ULIP from 25% to 38%, the exit rate for which has declined to 35% in June. Due to the change in surrender regulations, there is going to be a 100 bps negative impact on full year FY25 margin, assuming the company does not take any mitigating action. The share of term product on the HDFC Bank channel is 3%, which is lower than overall business and has scope to rise, which could be helpful for margin (ceteris paribus).

APE growth - Management expects HDFL to do better than industry APE growth, which in turn would drive VNB growth: For the quarter, the APE was Rs 28,660 mn down by -39.4% QoQ but up 23.1% YoY. The company will target growing retail new business APE at a pace faster than the industry. The company’s target is to grow absolute VNB and is willing to allow margin to fluctuate in a range in order to deliver growth. The company will target doubling VNB over 4 years on a consistent basis. The counter share on HDFC Bank was 66% by the end of 1QFY25 compared with 56.5% in 1QFY24 and is expected to go up more. The agency channel has grown at 14%, which could have been faster but the company is focused on profitable growth. The company has added 18,500 agents in 1QFY25, which is the highest in the industry.

We maintain an ‘ADD’ rating on HDFL with a revised price target of Rs 705: We value HDFL at 2.4x FY26 P/EV for an FY25E/26E RoEV profile of 17.1%/17.2%.

Result Highlights (See “Our View” above for elaboration and insight)

* VNB growth: The VNB de-growth/growth was -41.8%/17.7% QoQ/YoY, aided sequentially by de-growth in APE & VNB margin

* Expense control: Expense ratio grew 274bps/195bps QoQ/YoY to 21.9%, QoQ driven higher by increase of 154bps in Opex ratio and 120bps in comm. ratio

* Persistency: 37th month ratio declined -30bps QoQ to 73.1% but 61st month ratio rose 790bps QoQ to 59.9%

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632