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Performance largely in line

* In 2QFY27, Canara HSBC’s APE grew 11% YoY to INR6.6b (in line). For 1HFY27, APE grew 14% YoY.

* VNB at INR1.4b (in line) rose 20% YoY, resulting in VNB margin of 21.4% (19.7% in 2QFY26) vs. our est. of 21%. For 1HFY27, VNB grew 24% YoY with VNB margin of 21.3%.

* PAT grew 5% YoY to INR431m. EV at the end of 1HFY27 was INR76.2b, with an operating RoEV of 19.8%.

* Distribution paper is seen as net positive since CANHLIFE’s current EoM gap is comfortable vs. proposed 15%, commissions are moderate, and renewal payouts may rise. Improved affordability could further accelerate volumes, with industry-leading growth momentum to continue, as per management.

* While regulations are yet to be finalized, CANHLIFE’s current operations seem to be in line with the regulator’s directions in the consultation paper. We believe the key monitorable items are the impact on credit life due to regulations, GST drag, sub-debt-led improvement in solvency, and sustainability of the traditional mix. We have largely maintained our estimates considering the in-line performance in 2QFY27. We reiterate our BUY rating with a TP of INR180 (based on 1.7x FY28E EV).

Favorable product mix contributes 2.6% to margin expansion

* In 2Q, gross premium grew 12% YoY to INR25.8b, driven by 16% YoY growth in renewal premium and 12% YoY growth in first-year premium.

* APE growth of 11% YoY in 2Q was driven by 40%/66%/25%/11% growth in the Protection/Non-Par/Par segments, while Annuity/ULIP dipped 8%/1% YoY. While demand for protection and guaranteed products was affordable, ULIP was impacted by weak equity markets.

* The 23% YoY growth in traditional APE led to a rise in contribution to 55% (49% in 2QFY26), with a continued increase in contribution from protection segment and strong growth in credit life segment. Favorable product mix contributed 2.6% to margin expansion in 1HFY27.

* Apart from the product mix, favorable yield curve movements resulted in 0.8% contribution to VNB margin expansion, offset by a 2% impact due to expenses, largely related to GST-exemption.

* The channel mix, based on 2Q individual APE, was 59% from Canara Bank, 21% from HSBC Bank, 6% from other banks, and 15% from alternate channels. The recently launched agency channel witnessed an APE of INR257m in 2Q.

* Persistency ratios declined YoY in 2Q across all cohorts, except 25M and 37M persistency, with 13M persistency at 80.8% (82.0% in 2QFY26) and 61M persistency at 52.2% (58.8% in 2QFY26).

* The total expense ratio stood at 20.3% vs. 18.6% in 2QFY26. The commission ratio was largely stable YoY. While the cost ratio is above the proposed EoM threshold of 15%, the gap can be reduced in two years, aided by operating leverage and continued efficiency initiatives.

Valuation and view

* CANHLIFE continued to deliver robust growth in 2QFY27, along with VNB margin expansion, supported by a pickup in traditional segment’s contribution, a supportive interest rate environment, and operational leverage.

* The insurer’s under-penetrated PSU bank engine, rising contribution from premiumized HSBC flows, and disciplined agency expansion serve as key growth levers. Backed by rising branch activation, product mix upgrades, and operating leverage, we expect the company to deliver 19% operating RoEV going forward.

* While the regulations are yet to be finalized, CANHLIFE’s current operations seem to be in line with the regulator’s directions in the consultation paper. Impact on credit life due to regulations, GST drag, sub-debt to improve solvency and sustainability of the traditional mix are key monitorables.

* We have largely maintained our estimates considering the in-line performance in 2QFY27. We reiterate our BUY rating with a TP of INR180 (based on 1.7x FY28E EV).

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