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Single digit growth in premium income: HDFC Life Insurance reported net premium income growth of 5.7% YoY, as the first-year premium and single premium reported a de-growth of 10% YoY and 7% YoY, respectively while renewal premium grew by 23% YoY. Owing to the de-growth in first year premium and single premium Annualized Premium Equivalent (APE) during the quarter declined by 8.4% YoY to Rs 4,727cr while New Business Premium (NBP) declined by 8.1% YoY to Rs 9,531cr. Going forward, the management remains optimistic on the premium growth of the company as expect to grow in line with the industry.

Decline in VNB margin: During the quarter, VNB margin declined by 72bps QoQ/317bps YoY to 26.1%. The decline in margin has been mainly due to increase in proportion of ULIP, protection and increase in commission expenses. Net commission expenses reported a growth of 73.5% QoQ/94.7% YoY to Rs 2,164cr. For FY24, VNB margin of 26.3% was lower than the management guidance of 28-30%.

ULIP products continue to see traction: On an APE mix, proportion of ULIP products increased by 400bps QoQ/1500bps YoY to 31% while on NBP mix it grew by 300bps QoQ/700bps YoY to 15%. The increase in ULIP plans can be attributed to the positive market returns and tax benefits on the underlying products. Along with ULIPs, protection plans also saw a surge in the NBP mix by 300bps YoY, however, declined by 200bps QoQ. Non participating proportion which saw a decline on YoY saw an increase in the QoQ basis by 200bps in the APE mix and 100bps in NBP mix. Increase in non-par products shall help in maintaining margins and keeping the product mix diversified.

Growing banca network: The insurance company continues to see bancassurance as the main channel for selling of its policies. During the quarter, bancassurance share in the overall channel mix increased by 100bps QoQ/900bps YoY. The banca channel contributes 65% of the overall mix. The company sees the parent bank as the biggest banca partner and continue to collaborate with other banks and financial institutions for selling of its products. Other channels such as direct/agency/brokers which remained flat on QoQ basis declined by 200bps/200bps/500bps YoY. In the last 2 years, agency count has increased by 14% CAGR while during the year it on-boarded 80,000 agents. The agency channel helps to penetrate in tier 2/3 cities as currently the company drives 2/3 of its total business from the non-tier-1 cities. The company shall continue to onboard new agents going forward.

Valuation and outlook: HDFC Life Insurance reported premium growth and VNB margins below companies guidance mainly due to the impact of the high ticket size policies which impacted premium. Going forward, the insurance company continues to diversify it's portfolio and increase agents count while collaborating with banks for the distribution of its products. In FY25, the company aims to grow in par with the industry growth and maintain its leadership position in the industry. We maintain Buy rating on HDFC Life, however, reduce our target price to Rs 725 valuing the company at 2.6x of its FY26E embedded value per share.

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