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HDFCLIFE reported a weak set of numbers in Q4FY26, with APE and VNB margin for the quarter (and for the year) at Rs52.5bn and 24.0% (Rs166.4bn and 24.2%), respectively, lower than consensus’ and our estimates. A host of internal and external factors turned adverse for the company during the year, resulting in the weak show; these include 1) aggressive non-par product pricing by competitors in the HDFC Bank channel leading to loss of counter share; 2) impact of the GST ITC loss and new surrender regulation in the year affecting margins; and 3) lower offtake of non-par leading to lower margin in the savings business. Notwithstanding the lackluster performance, we remain optimistic on growth and margins in FY27 as 1) the base turning favorable and the company’s track record of delivering >15% APE CAGR over 5-7 years give us confidence on ~14% APE growth; and 2) sustained growth in retail protection, growth acceleration in credit life, bounce back in non-par savings, and waning negative impact of the GST ITC loss are likely to drive a 100bps margin expansion. To factor in the Q4 developments and management commentary, we adjust our estimates which leads to a 2%/3% cut in FY27E-28E APE/VNB. We reiterate BUY on the stock with unchanged Mar-27E TP of Rs750 implying FY28E P/EV of 2.0x.

Weak show on growth and profitability

In Q4FY26, HDFCLIFE reported APE/VNB/VNB margin of Rs52.5bn/Rs12.6bn/24.0%, which was much weaker than our muted forecasts of Rs55.0bn/Rs13.5bn/24.5%. The main spoilsport was the lackluster show in the HDFC Bank channel on account of the aggressive offering in non-par by competitors which caused the counter-share loss for HDFC Life. This counter-share loss led to slower APE growth. This, in turn, resulted in lower fixed-cost absorption and an adverse product mix in non-linked savings – hence the VNB margin miss. Embedded Value at Rs621bn was ~1% above our estimate.

Multiple levers to drive growth and margin improvement in FY27

The confluence of a host of factors causing the growth and margin miss in FY26 turns us more constructive on the FY27 growth and margin outlook, as most of the factors start normalizing. The sustained momentum in retail protection, growth acceleration in credit life on the back of MFI growth, and a likely pick up in the non-par savings product are likely to support FY27 growth and profitability. With the capital infusion of Rs10bn by the parent helping improve solvency by ~9ppts (or ~5ppts if the Rs4.5bn dividend payout is adjusted) and granting flexibility to raise Rs5bn of subordinate-debt, the balance sheet is well prepared for the company to capitalize on the growth opportunity in capital-intensive protection and non-par savings.

Minor cut in estimates; reiterate BUY with unchanged Mar-27E TP of Rs750

To factor in the FY26 APE and margin miss and management commentary, we adjust FY27E-28E APE/VNB by 2%/3% and introduce FY29 estimates. Given that a host of internal and external headwinds having played out, we are more confident on growth and margin revival in FY27 which is likely to drive a gradual re-rating of the stock. We reiterate BUY on HDFCLIFE with unchanged Mar-27E TP of Rs750 implying FY28E P/EV of 2.0x, for ~15-16% RoEV and ~14% growth.

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