Buy HDFC Life Insurance Ltd For Target Rs. 855 By JM Financial Services
In line results
HDFC Life reported another quarter of steady 13% VNB growth, in line with JMFe. Total APE of INR 32bn was in line, while margins were a very slight disappointment at 25.1%, flattish YoY, against JMFe of 20bps expansion. The company saw a 39% contraction in non-par APE with customers taking to new par variants offered and more attractively priced products from peer insurers. We believe the product mix shift from ULIPs to non-par is only delayed and the company has multiple levers to raise margin profile, including higher growth, recovery in non-par volumes and a pick-up in credit life in 2HFY26. We retain our margin estimates and raise growth for FY26/FY27e by <1%. While the company commands a premium valuation to peers, it trades at 1SD below its mean valuations despite its consistent VNB growth. We expect the company to deliver 15%+ APE growth in FY26/FY27e, with a margin improvement of 100bps by FY27e over FY25 levels. We largely maintain our EV estimates and value the company at 2.5x FY27e EVPS of INR 348 to get a revised Target Price of INR 855 (up from INR 850). We reiterate BUY.
* Steady growth in Ind/Total APE of 13% each: HDFC Life reported Individual APE growth of 13% (2.3% beat on JMFe) well above private industry growth of 8.3% (Reported industry data). Demand for ULIP product continued during 1Q26 with growth of 12.2% YoY. While non-par growth suffered at -39% YoY, par segment compensated with strong growth of 124% YoY in 1Q26. Individual APE growth from banca channel was mild at 11% YoY. Placid growth in agency channel (+6% YoY) was compensated by strong growth of 23% YoY in other channels (including non-bank alliances and direct channel). We expect Ind APE to clock 15.5% CAGR over FY25-FY27e.
* A slight miss on margin due to negative impact of fixed cost absorption: Despite a 60bps negative impact of fixed cost absorption, margins remained stable at 25.1% (flat YoY) as the new business profile improved YoY. Par products have done well in 1Q26 on the back of newer product propositions. Mgmt. expects FY26 margins to remain range bound as the company ploughs back profits for growth. Higher Sum Assured and rider attachment in ULIPs, longer product terms and improved persistency are expected to prevent margin deterioration. We believe the product mix shift from ULIPs to non-par is only delayed and the company has multiple levers to raise margin profile going ahead.
* Valuations and view: At CMP, the company trades at valuations of 2.5/2.2x FY26/FY27e EV, implying 18/15x FY26/FY27e EVOP. While the company commands a premium valuation to peers – justified for its balanced product mix and consistency in growth and EV/VNB outcomes, it trades >1SD below its mean valuations. As we expect the company to deliver 15%+ APE growth in FY26/FY27e, with a margin improvement of 100bps by FY27e over FY25 levels, we expect the stock to rerate as th eyear progresses and growth catches for the company and the industry. We largely maintain our EV estimates, value the company at 2.5x FY27e EVPS of INR 348 to get a revised Target Price of INR 855 (up from INR 850). We reiterate BUY.
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SEBI Registration Number is INM000010361
