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Moderation in premium growth, however, margin sustained

Subdued top-line growth: HDFC Life Insurance net premium growth remained subdued with a growth of 3.2% QoQ/6% YoY to Rs 15,273 Cr as the company saw muted growth in high ticket size policies. First year premium and Single premium saw decline in YoY growth due to high base effect by 2%/5%. Consequentially, APE/ NBP declined by 12%/3.5% YoY during the quarter. Commission expenses increased by 5% QoQ/80% YoY to Rs 1,247 Cr leading to decline in policyholders account by 6% QoQ/3.4% YoY to Rs 830.1 Cr.

Improvement in margins: Despite moderation in premium income, the private insurer maintained its margins by enabling cost optimization measures and balance product mix. VNB margin improved by 52bps QoQ/269bps YoY to 26.8%. VNB margin improved despite increase in commission costs and the company intends to maintain its margin going forward and design products which shall aid the margins.

ULIP products continues to gain traction: The company continues to see growth in the ULIP products due to favourable returns and tax advantage. ULIPs formed 27% of APE mix increasing by 300bps QoQ/900bps YoY in the overall mix. On NBP basis, ULIP products stood at 12% of the overall products mix increasing by 100bps QoQ/300bps YoY. The company aims to keep the product mix balanced in the long term and continues to take steps to increase the sale of non-par products in the overall mix.

Partnership with bank aiding growth: Bancassurance channel continues to be the leading contributor of the premium income. It contributed 64% of the overall premium in APE mix increasing by 500bps YoY. The company has made strategic partnership with Karnataka Bank, Karur Vyasa Bank and other banks for sale of insurance products. In line with the partnerships, the company will add 75 new branches for sale of insurance products going forward.

Guidance going forward: The management remains confident of maintaining its guidance of 15% YoY premium growth and expect Q4FY24 growth to be in double digits. The company aims to launch products which was well suited for small ticket policies and aid margins as well. Its aims to continue to focus on sale of non-par products and increase sale of protection plan high than the industry.

Conclusion: We remain positive on HDFC Life Insurance company has the company has been one of the market leaders in the private life insurance business. Despite being a subdued quarter, the company remains confident of its growth in coming quarters. We maintain our Buy rating on HDFC Life Insurance and expect APE/VNB/ NBP growth of 17%/14%/15% CAGR over FY23-26E. However, we revise our target price downwards to Rs 757 valuing the company at 2.8x of its FY26E embedded value per share.

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