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VNB & APE miss estimates

Growth outlook remains steady

* HDFC Life Insurance (HDFCLIFE) in 3QFY24 reported lower-than-expected performance with total APE at INR31.9b (missed our estimates by 7.3%).

* Total APE declined marginally by 2% YoY to INR31.9b as NonPAR/annuity/term products declined 35%/45%/16% YoY, offset by 74%/96% surge in ULIPs/group products.

* VNB margins, at 26.8%, fell 70bp below expectations (missing estimates by 9.6%). Nevertheless, EV grew 20% YoY to INR452b.

* 3QFY24 PAT at INR 3.6b was broadly in line with estimates and saw a 16% YoY growth.

* For 9MFY24, APE/VNB/PAT grew 5%/5%/16% to INR86b/22.6b/11.5b.

* We estimate HDFCLIFE to deliver ~15% VNB CAGR over FY23-26 and margin to improve to ~29.4% by FY26E. We retain our Neutral stance on the stock with a TP of INR700 (premised on 2.6x Sep’25E EV).

Strong growth of 74% YoY in ULIPs

* HDFCLIFE’s total premium rose 6% YoY to INR152b (7% miss), within which, new business premium declined 3.5% YoY, while renewal premium grew 16.8% YoY.

* Total APE declined marginally by 2% YoY to INR31.9b (7% miss) in 3QFY24 with individual APE at INR 27.9b (flat YoY). Within total APE, ULIPs/Group products spiked 74%/96% YoY, while Non-PAR/annuity/term products declined 35%/45%/16% YoY in 3QFY24.

*VNB declined 2% YoY (9.6% miss) with margins missing our estimates by 70bp at 26.8% (flat YoY).

* On the distribution front, the share of banca improved to 64% while agency channel constituted 18% share for 9MFY24 (based on individual APE). This increase was at the cost of direct and broker channel as it continues to face headwind in the form of heightened competition and its share moderated to 11% and 6% respectively for 9MFY24.EV grew 20% YoY to INR452b. Total AUM increased 20% YoY to INR2.8t, while solvency ratio stood at 190% (400bp QoQ decline).

Highlights from the management commentary

* Growth in the tier 2 and tier 3 towns has been 2x that of the company and has accounted for 65% of the overall topline.

* The company remains optimistic about its growth prospects, driven by 1) sustained growth in less than INR0.5m ticket size, 2) anticipated stability in the macro environment leading to increased allocation to insurance products, 3) the forthcoming full-year impact of counter share at HDFC Bankdevelopments, 4) the expansion of new relationships (most relationships in the past HDFC Life have achieved a counter share of 30-35% within 15 months) and 5) the expected benefits for the agency channel through the addition of new branches.

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