Buy HDFC Life Insurance Ltd for the Target Rs.680 by Motilal Oswal Financial Services Ltd
VNB margin within guided range of 24-25%
* HDFC Life Insurance (HDFCLIFE) reported APE of INR47.3b (in line) in 2QFY27, up 13% YoY, with individual APE growing 11% YoY and group APE growing 25% YoY. For 1HFY27, APE grew 11% YoY.
* Absolute VNB grew 15% YoY to INR11.6b (in line). VNB margins came in at 24.5% vs. 24.1% in 2QFY26 (est. 24.3%). For 1HFY27, VNB grew 12% YoY with VNB margin at 24.7% (24.5% in 1HFY26).
* Shareholder PAT increased 14% YoY to INR5.1b (in line). Embedded value as of 1HFY27 end was INR664.6b with operating RoEV of 14.9%.
* VNB margin would continue to benefit from scale and operating leverage, supported by recovery in business volumes; however, much of the upside is likely to be reinvested into capability enhancement.
* We have largely maintained our estimates considering the in-line performance in 2QFY27. We reiterate our BUY rating with a TP of INR680 (based on 1.8x FY28E EV). While proposed distribution reforms can improve affordability, the eventual impact on growth, margins and distribution economics depends on the final regulations. IFRS and risk-based capital are the additional monitorables with respect to operational performance.
Protection and non-par contribution rises YoY
* For 2QFY27, HDFCLIFE’s gross premium grew 16% YoY to INR224b (in line), driven by 10% YoY growth in renewal and first-year premium and 31% YoY growth in single premium.
* Annuity segment APE more than doubled YoY, backed by new launches and broad-based growth across offerings. Protection APE continued to grow strongly at 22% YoY, with expectation of normalization due to high-base. Contribution from the protection segment continued to improve YoY, with individual protection contributing 8% to APE (vs. 7.8% in 2QFY26).
* Non-par APE witnessed strong growth of 41% YoY and the current interestrate environment presents an opportunity to strengthen guaranteed-return propositions.
* ULIP APE grew 14% YoY despite market volatility during the quarter and the contribution was stable at 40.5% in 2Q. Par segment APE fell ~51% YoY.
* While the rising share of protection and non-par savings boosted VNB margin by 1.8%, assumption changes, expenses and GST-led hit impacted VNB margin by 1.5%, resulting in 20bp YoY gain in VNB margin in 1HFY27.
* On an individual APE basis, the broker channel jumped 26% YoY, backed by continued investment in productivity improvement. Agency/direct/banca channels grew 3%/2%/12% YoY. HDFC Bank’s counter share continued to improve.
* Persistency ratios declined YoY across all cohorts, except for 61M, owing to a specific non-par cohort written last year (which is now running off), along with weaker ULIP renewal collections amid market volatility.
* As of Jun’26, total AUM grew 14% YoY to INR4.1t.
* EV as of 2Q-end stood at INR658.6b (+13% YoY). The solvency ratio was 180%.
* The commission ratio remained stable YoY at 12% in 2Q, and the opex ratio increased to 13.9% from 12.3% in 2QFY26, resulting in a rise in the overall expense ratio to 21.9% from 21.3% in 2QFY26. The proposed EoM threshold of 15% can be reached, though improvement in business volumes would be a key monitorable if the reforms are implemented.
Valuation and view
* HDFCLIFE reported 13% YoY growth amid continued momentum in agency, HDFC Bank and non-HDFC Bank channels. Rising protection and non-par savings contributions boosted VNB margin, with excess margins allocated toward business improvements. Margins remained within the 24-25% guided range.
* We expect the growth trajectory to remain stable at 14% for FY26-28E, along with a stable expansion in VNB margin to 25.5% by FY28E, driven by a diversified product mix, rising sum assured, and improving rider attachments.
* We have largely maintained our estimates considering the in-line performance in 2QFY27. We reiterate our BUY rating with a TP of INR680 (based on 1.8x FY28E EV). While the proposed distribution reforms can improve affordability, the eventual impact on growth, margins and distribution economics depends on the final regulations. IFRS and risk-based capital are the additional monitorables with respect to operational performance.
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