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VNB margin benefits from product mix; 60bp GST impact

* HDFC Life Insurance (HDFCLIFE) reported an APE of INR35.2b (in line) in 1QFY27, up 9% YoY, with individual APE growing 7% YoY and group APE growing 22% YoY.

* Absolute VNB grew 9% YoY to INR8.8b (6% beat), resulting in a VNB margin of 25% vs. 25.1% in 1QFY26 (est. 24.0%).

* Shareholder PAT increased 12% YoY to INR6.1b (in line). Embedded value at the end of 1QFY27 was at INR658.6b with operating RoEV at 14.7%.

* Protection as a % of APE is expected to remain broadly range-bound at current levels. On the other hand, annuity contributions are likely to increase further, while non-par savings contributions are anticipated to stabilize in the mid-20% range, according to management. ULIP mix is not expected to witness any meaningful upward or downward movement.

* We maintain our APE estimates but increase our VNB margin estimates by 50bp for FY27, considering the 1QFY27 performance. We reiterate our BUY rating with a revised TP of INR690 (based on 1.8x FY28E EV)

Protection continues to rise; non-par at 20%+ of individual APE

* For 1QFY27, HDFCLIFE’s gross premium grew 15% YoY to INR172b (in line), driven by 19% YoY growth in renewal premium and 15% YoY growth in single premium.

* The group segment and annuity segment witnessed strong 118% YoY growth each. The protection/ULIP/non-par segments witnessed a growth of ~16%/22%/22% YoY. Par segment’s APE declined ~52% YoY.

* Contribution from the protection segment continued to improve YoY, with individual protection contributing 8% to APE in 1QFY27 (6% in 1QFY26). However, with the GST tailwind impact likely to normalize, the contribution is expected to remain range-bound in the future.

* While the rising share of protection and non-par savings, along with improving ULIP margins, benefited the VNB margin, it was hit by the loss of ITC (60bp). The residual impact of 60 basis points is expected to taper off in the next quarter, after which margins should stabilize.

* On an individual APE basis, the agency channel jumped 20% YoY, backed by continued investment in productivity improvement. The broker/direct channels grew 7%/19% YoY, while the banca channel slowed down (+2% YoY) owing to heightened competitive intensity in HDFC Bank. However, the company has seen improvement in HDFC Bank’s counter share, and the growth trajectory is expected to improve going forward in this channel.

* Persistency ratios declined YoY across 13M/25M/49M in 1QFY27. 37M and 61M persistency improved YoY.

* As of Jun’26, total AUM grew 13% YoY to INR4t

* EV at the end of 1QFY27 stood at INR658.6b (+13% YoY), reflecting an operating RoEV of 14.7%. The solvency ratio stood at 185%.

* The commission ratio increased to 12.2% from 11.8% in 1QFY26, and the opex ratio increased to 14.4% from 14.2% in 1QFY26, resulting in a rise in the overall expense ratio to 22.5% from 21.9% in 1QFY26.

Valuation and view

* HDFCLIFE has reported a 9% YoY growth with continued momentum in agency and non-HDFC bank channels, rising protection and non-par savings contributions, and improving ULIP margins. We expect the growth trajectory to remain stable at 15% for FY26-28E, along with a stable VNB margin, driven by a diversified product mix, rising sum assured (especially in ULIPs), and improving rider attachments. While the loss of ITC has impacted profitability, the same is likely to be fully absorbed by 1HFY27, normalizing its VNB margin.

* We maintain our APE estimates but increase our VNB margin estimates by 50bp for FY27, considering the 1QFY27 performance. We reiterate our BUY rating with a revised TP of INR690 (based on 1.8x FY28E EV).

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