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HDFCLIFE reported a broadly in-line quarter with APE growth slighted muted at 9% yoy and VNB margin of 25% (broadly flat yoy) driving VNB growth of 9% yoy to Rs 8.8bn. A favorable product mix, with strong growth in Retail protection (+42% yoy), Credit Life (+19% yoy), and Annuity (+115% yoy), helped offset the margin drag from GST ITC loss, lower fixed-cost absorption on slower growth, and slight changes to persistency assumptions. Despite slower-than-industry growth in Retail APE in 1QFY27, the management remained confident of achieving retail APE growth in line or better than the industry in FY27, and VNB margin staying largely flat, as it sees signals of growth recovery at HDFC Bank and growth momentum building in other distribution channels. To reflect 1Q developments and management commentary, we adjust our FY27-29 estimates, resulting in an APE and VNB cut of ~1-2%, and maintain BUY with an unchanged TP of Rs750. Growth revival and clarity on commission regulations will be key to a stock re-rating.

Favorable product mix helps deliver stable margin

With Retail APE growth of 7% yoy and total APE growth of 9% yoy, HDFCLIFE’s 1QFY27 was a muted show on topline. However, a stable VNB margin at 25% was impressive, and slightly better than our estimate. A favorable product mix, led by strong growth in Retail Protection, Credit Life, and Annuity, helped the company offset the negative impact of GST ITC loss, lower fixed-cost absorption, and persistency-related assumption changes. EV at Rs658.6bn was broadly in line with our estimate, aided by a Rs10bn capital infusion by HDFC Bank. PAT at Rs6.1bn grew ~12% yoy and was in line with our estimate. On the operational front, 13th-month persistency saw minor moderation, while 61st-month persistency improved. Solvency ratio stood at 185%.

Growth and margin outlook reaffirmed

In the last few quarters, HDFCLIFE’s growth has lagged peers, primarily owing to the challenges caused by intense competition in the HDFC Bank channel. Led by the corrective measures taken by the company, the management expects to regain counter share in the HDFC Bank channel, while other channels sustain their growth momentum. Encouraged by this, the management guides for retail APE growth in line with the industry in FY27 and VNB margin to be in flat yoy. With the management prioritizing growth over margins, VNB growth is likely to track APE growth. The management remains focused on maintaining a balanced product mix.

Minor tweak to estimates, retain BUY

To reflect 1Q developments and management commentary, we have changed our FY27- 29E estimates, leading to ~1-2% cut in APE and VNB. We maintain BUY with an unchanged Jun-27E TP of Rs750, implying 2x FY28E P/EV. Currently trading at ~1.5x FY28E P/EV for ~15% ROEV, HDFCLIFE shares are trading on ex-growth multiples, and the risk-reward is favorable. Growth revival and clarity on commission regulations will be key to a re-rating of the stock.

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