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HDFC Life Insurance

In 2QFY24, HDFC Life reported APE of INR 30.5bn registering growth of +1% YoY/+31% QoQ with its market share at 9.7% (+70bps YoY). On expected lines, non-par savings growth continue to lag (-35% YoY) on account of new tax rules, though strong growth in ULIPs and par segment balanced out the negative impact of degrowth in non-par. Banca continues to remain the dominant distribution channel (contributing 65% of 1HFY24 indvl APE; up 8pps YoY); management indicated that its wallet share in HDFC Bank has inched up to 62% in 2QFY24 vs 55.5% in 1QFY24 and expect the improvement to sustain. HDFC Life reported VNB margins of 26.3% (+10bps QoQ) despite a  reduction in share of high margin non-par savings and healthy growth seen in low margin ULIP segment. Management indicated that incrementally, VNB growth will be driven by APE growth rather than margin improvement. The insurer reported an EV of INR429bn as of Sep’23 with operating RoEVs improving to 16.4%. Management remains confident of maintaining the incremental growth in the range of 15-16% (on adjusted base of FY23 for high non par sale in Mar’23) going ahead. We believe HDFC Life remains well placed for valuation rerating owing to a) successful leveraging of HDFC Bank banca channel post merger, b) revival in premium growth, and c) steady NBMs, driven by strong impetus on protection. We value HDFC Life at 2.9x FY25E EV to arrive at our TP of INR 750. Maintain BUY.

APE growth driven by ULIPs and par: In 2QFY24, HDFC Life reported APE of INR 30.5bn registering growth of +1% YoY/+31% QoQ with its market share at 9.7% (+70bps YoY). On expected lines, non-par savings growth continue to lag (-35% YoY) on account of new tax rules, though strong growth in ULIPs and par segment balanced out the negative impact of degrowth in non-par. Even protection saw strong growth of 79% YoY driven by inch up in both retail and credit life and management expects this momentum to sustain going ahead. Management remains confident of maintaining the incremental growth in the range of 15-16% (on adjusted base of FY23 for high non par sale in Mar’23 – around INR 10-11bn higher which translates into a FY24E growth of c.7%) going ahead driven by i) fire up of HDFC Bank and other bancassurance partners which could be more effectively leveraged for higher growth – which is expected to be critical factor contributing to the growth impetus post-merger and ii) strong product bouquet which is expected to remain largely unaffected by change in regulations. We build in APE growth of 5% for FY24E (on a high base of FY23) followed by a 16% YoY growth in FY25E. 

Synergies from HDFC Bank merger to aid distribution: Banca continues to remain the dominant distribution channel (contributing 65% of 1HFY24 indvl APE; up 8pps vs 1HFY23). As expected, HDFC Life has benefitted from the merger of HDFC Bank with HDFC Limited with its wallet share in HDFC Bank channel increase to 62% in 2QFY24 vs 55.5% in 1QFY24 (70%+ in Sep’23). Management expects this trend to continue as the bank is expected to more aggressively push HDFC Life products, which, in turn, should drive retail premium growth given HDFC Bank’s large branch network and a large client base. Agency channel continues to see strong traction (18% contribution in 1HFY24) as HDFC Life has added new agency partners. On the direct channel, the proportion has seen a moderation to 11% in 1HFY24 (vs 17% in 1HFY23) on account of reclassification of business from PB Fintech channel as broker from direct channel earlier. Though, contribution from broker channel remains subdued at 7% in 1HFY24 (vs 8% in 1HFY23).  

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