Accumulate HDFC Life Insurance Company; target of Rs 644: Dolat Capital Market

Dolat Capital Market's research report on HDFC Life Insurance Company

HDFCLIFE reported a strong set of numbers with GWP increasing 35% YoY to Rs 102bn in Q2FY21. Renewal premium collection continued to be strong, up 21% YoY to Rs 43bn. APE growth was robust at 21% YoY to Rs 21.4bn driven primarily by the savings business, which grew 27% YoY to Rs. 18.9bn. We expect HDFCLIFE to continue to outpace the private players going forward. Growth in the savings portfolio was led by the Sanchay Par product which saw strong demand through the bancassurance and agency channel. HDFCLIFE’s market share within HDFC bank stood at ~70% during the quarter. We expect the savings APE to grow ~10% in FY21. 1HFY21 growth was flat at ~2%. In the current lower interest rate environment, we expect non-par guaranteed products and the sanchay par products to be the key drivers. Protection APE de-grew ~10% YoY to Rs 2.5bn led by the continuous fall in the credit protect portfolio (down ~36% YoY in Q2FY21). Retail protection APE grew by ~33% YoY to Rs 1.4bn during the quarter. Sequentially, however, credit protect saw improving trends and the growth in this segment could revive by Q3FY21 as most partners are seeing disbursement levels at ~90% of FY20. APE growth coupled with improving business mix towards non-linked segment resulted in the VNB margin improving 130bps to 25.6%. Overall VNB grew by ~22% YoY to Rs 5.5bn. We expect VNB margin to remain flat at 25.8% for FY21.

Outlook

Following the continuous strong performance and better outlook, we revise our estimates and recommendation for HDFCLIFE to “Accumulate” from “Reduce” in Q1FY21. We value HDFCLIFE at 3.9x FY22E EV with an unchanged target price of Rs. 644.

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