Add HDFC Life Insurance Ltd For Target Rs. 815 By Yes Securities Ltd
Management guides for mid to high teens VNB growth
Our view – APE growth seen as key driver for VNB growth, going forward
VNB margin – Leaving aside the impact from surrender charges regulation, management stated the margin will be range-bound: The base case is that 2HFY25 margin will be slightly higher than 1HFY25. Despite the strength seen in ULIPs, slightly higher margin products are now expected to take center stage. For the quarter, calculated VNB margin declined 74 bps QoQ to 24.3%. There was a negative impact on VNB margin amounting to 30-40 bps in 1HFY25 due to the deferment of repricing of non-par savings and annuity products. As guided earlier, there would be a 100 bps impact on margin due to the surrender regulation if no action would be taken by the company. However, the company is re-negotiating with partners after the introduction of this regulation.
APE growth - The company has grown 400 bps faster than the private sector and intends to continue to outpace the industry going forward: VNB growth is the key priority and the company has delivered 17% YoY growth in this regard. The company aims to grow at a similar pace and deliver 15-17% VNB growth for FY25 as a whole. The share of ULIP was intentionally reduced and it has come down from 38% in 1QFY25 to 35% in 2QFY25. The Non-par savings has grown by 77% YoY in 1HFY25. This growth was aided by launch of new products such as Click2achieve. Individual Protection APE grew 27% YoY in 1HFY25. In retail protection, the company expects the current healthy growth momentum to be maintained.
We maintain an ‘ADD’ rating on HDFL with an unchanged price target of Rs 815: We value HDFL at 2.7x FY26 P/EV for an FY25E/26E/27E RoEV profile of 17.0%/17.2%/17.2%
Other Highlights (See “Our View” above for elaboration and insight)
* VNB growth: The VNB growth was 30.6%/17.1% QoQ/YoY, driven sequentially by growth in APE
* Expense control: Expense ratio de-grew/grew -56bps/148bps QoQ/YoY to 21.3%, QoQ driven lower by decrease of -58bps in Commission ratio
* Persistency: 37th month ratio was flat QoQ at 73.1% but 61st month ratio rose 800bps QoQ to 67.9%
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SEBI Registration number is INZ000185632.
