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Steady growth; margin outlook stays range-bound

Q1FY27 APE saw a mild growth of ~9% YoY led by ULIP, NPAR and protection segments. While banca growth remained subdued due to lower HDFCB channel volumes, improvement in counter-share across other banking partners and easing competitive intensity provides visibility for growth recovery. We build an APE growth of 12%/ 14% for FY27/ FY28E. Q1 VNB margin remained flat YoY at 25.0% despite a residual GST impact. We expect VNB margin to remain rangebound at 24.5% /24.8% in FY27/28E as the company continues to prioritize growth and the impact of GST neutralizes. We value HDFCLIFE using the appraisal value framework with a TP of INR 765 (FY28E P/EV unchanged at 2.0x). Retain BUY.

Expect ~12% APE growth in FY27E:

HDFCLIFE reported ~9% YoY APE growth in 1QFY27 amounting to INR 35.1bn led by ULIP (+22% YoY), NPAR (+22% YoY) and protection (+16% YoY). PAR segment saw a degrowth of 52% YoY on a high base. Retail protection continued to see strong momentum (+42% YoY) supported by GST relief while company registered ~20% YoY growth in Credit Protect driven by a recovery in MFI-disbursals. Management does not expect any meaningful increase in ULIP share but expects growth in NPAR, annuity and protection segments to continue. ULIP/PAR/NPAR/Protection/Annuity/Group comprise 37%/12%/19%/16%/10%/5% of APE in 1QFY27. We build a growth of 12%/ 14% for FY27/ FY28E driven by retail protection, recovery in credit protect volumes and steady growth across annuity and saving products.

Margin range-bound; expect 24.5% in FY27E:

1QFY27 VNB grew by 9% YoY to INR 8.8bn. Q1 VNB margin remained largely flat YoY at 25.0% (vs. 25.1% in 1QFY26). Management aims to deliver VNB growth broadly in-line with APE growth, although margin expansion is likely to be limited due to the drag from GST exemption. Commentary indicated an impact of ~60 bps on Q1FY27 margin due to the loss of Input Tax Credit and expects to absorb the remaining ~60 bps by H1FY27. We build a VNB margin of 24.5/24.8% for FY27/28E factoring a recovery in NPAR volume, sustained momentum in protection and improvement in high rider ULIP / annuity.

EV growth of 13% YoY; strengthened capital position:

Embedded Value grew 13% YoY to INR 658.6bn, led by positive VNB growth and favourable unwind. Consequently, operating RoEV on a rolling 12-month basis stood at 14.7%. Persistency trends stood for 13M/25M/37M/49M/61M at 84%/76%/75%/70%/65% respectively. AUM grew 13% YoY to INR 4,008bn. Solvency Ratio improved to 185% following the preferential allotment to HDFC Bank of INR 10bn making adequate room for expansion for the next 15-18 months.

Banca recovery underway; agency expansion continues:

Banca/agency/direct/brokers & others contributed 57%/18%/10%/15% to Individual APE in 1QFY27. Banca contribution remained impacted due to lower HDFC Bank channel volumes leading to flattish YoY growth (+2%). However, counter share at other banking partners improved and management expects HDFC Bank channel to contribute towards growth over FY27 as competitive intensity moderates. Moreover, agency and non-bank alliances continued to witness healthy momentum. Agency grew by 20% supported by expansion in distribution footprint and productivity improvement initiatives. New branches opened over the last 24 months contribute ~16% of agency APE with broad-based growth across cities. Expense of Management (EoM) ratio stood at 22.6% for Q1 (vs. 21.9% YoY) and we expect opex to be elevated over the near-term as the company invests in new capabilities (Project Inspire).

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