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Growth outlook remains steady

HDFC Life Insurance (HDFCLIFE) reported a decent performance in 2QFY24, with APE in line with our estimates at INR30.5b (up 7% YoY). The company reported a 3.4% miss on VNB and a 40bp miss on VNB margins. 

APE rose 7% YoY to INR30.5b, driven by ULIP, term and annuity products while non-PAR declined 30% YoY.

 VNB increased by 4% YoY (3.4% miss), with margin declining 80bp YoY to 26.2%. EV grew 3% QoQ to INR429b.

 In 1HFY24, APE/VNB/PAT grew 9%/10%/15% to INR54b/INR14.1b/INR7.9b.

2Q PAT at INR3.8b was in line with estimates (up 15.5% YoY). 

We estimate HDFCLIFE to deliver an ~18% VNB CAGR over FY23-25 and margin to improve to ~28.5% by FY25. Retain Neutral with a TP of INR700 (premised on 2.7x Mar’25E EV). 

Protection trends improving; ULIP growth strong at 70%

HDFCLIFE’s total premium rose 12.5% YoY to INR148b (in line), with new business premium up 11.4% YoY and renewal premium up 13.5% YoY. ?

Total APE grew 6.8% YoY to INR30.5b (in line) in 2QFY24, with individual APE rising 7% YoY. Within total APE, ULIPs/Group spiked 70%/675% YoY, while Annuity and Term grew 10%/14% YoY. Non-par declined 30% YoY. ?

VNB grew 4% YoY to INR81b (3.4% miss) in 2QFY24, while VNB margin declined ~80bp YoY to 26.2% (flat QoQ). 

On the distribution front, based on individual APE, the share of banca improved to 61% and the agency channel’s share stood at 20%. This increase was at the cost of the direct channel as it continues to face intense competition, with its share moderating to 12% (from 22% in 1QFY23).

Total EV grew 3% QoQ to INR429b. Total AUM increased by 18% YoY to INR2.6t, while the solvency ratio stood at 194% (600bp QoQ decline). 

Highlights from the management commentary

The company’s broader aim is to grow VNB in line with APE and maintain VNB margin in FY24 vs. FY23. In FY25, margins are expected to improve. 

Growth in protection was robust at 28% on new business premium basis. Retail protection registered YoY growth of 46% in 1HFY24. 

The share of return of premium products has been increasing, with the increase in presence in tier 2 & 3 cities (~30% of the total protection). 

With regards to distribution in low-tier cities, the Exide merger and partnerships with banks that have a strong presence in these geographies will be the key drivers. HDFC Bank’s strategy to expand its branch network would also be helpful.

Valuation and view

HDFCLIFE focuses on maintaining a balanced product mix, with an emphasis on product innovation and superior customer service. While protection has picked up momentum, Non-PAR growth is likely to be back-ended. Credit life will continue to witness healthy traction as the momentum in disbursements across lending institutions remains strong. Persistency trends improved across all cohorts, which should keep renewal premium growth healthy. We estimate HDFCLIFE to deliver an ~18% VNB CAGR over FY23-25 and margin to improve to ~28.5% by FY25. Maintain Neutral with a TP of INR700 (premised on 2.7x Mar’25E EV). 

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