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Growth falls short; FY27 to see recovery

Quick Pointers

* Muted APE growth amid NPAR drag; outlook remains watchful

* Q4 VNB margin at 24.0%; expect gradual expansion by FY27/FY8E

Q4FY26 APE was flat YoY on account of softness in banca volumes and subdued growth in NPAR. While sustained momentum in retail protection post GST rationalization continues to be positive, near-term demand is likely to be impacted due to global uncertainties. We build an APE growth of 11%/ 13% for FY27/ FY28E. Q4/ FY26 VNB margin contracted to 24.0%/ 24.2% due to higher fixed costs (~90 bps) and a drag from GST exemption (~110 bps). We build a gradual expansion in VNB margin to 24.7% /25.2% in FY27/28E (back to FY25 levels) as the share of protection/ annuity increases and the impact of GST neutralizes. The stock has corrected significantly due to under-performance on growth; we expect a recovery in margin and growth outlook in FY27/ FY28E. We roll-forward to FY28E with a slight change in multiple of 2.2x (vs. 2.4x earlier). We value HDFCLIFE using the appraisal value framework with a TP of INR 835. Retain BUY.

Expect 11% growth in FY27E: HDFCLIFE witnessed flat APE growth in 4QFY26 (+1% YoY to INR 52.5bn) on account of slowdown in NPAR (-26% YoY) due to higher competitive intensity. While ULIP and PAR grew 4%/6% YoY, commentary highlighted volatility over the near-term due to global headwinds/ West Asia war. Retail protection however, continued to see strong momentum (+102% YoY) supported by GST relief and a strengthened product portfolio. Term protection including rider attachments contributed to ~3% of Individual APE. Company registered a healthy growth of 15% in Credit Protect in FY26 with a recovery in MFI-disbursals. ULIP/PAR/NPAR/Protection/Annuity/Group comprise 41%/20%/16%/14%/8%/6% of APE in 4QFY26. While FY26 APE has grown 8% YoY, company expects a recovery in FY27 with tailwinds in retail protection/annuity segments and growth in tier 2/3 markets. We build a growth of 11%/ 13% for FY27/ FY28E driven by retail protection, recovery in NPAR and steady growth in PAR and ULIP. 

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