Buy HDFC Life Insurance Company; target of Rs 704 KRChoksey

KRChoksey's research report on HDFC Life Insurance Company

Total Gross Written Premium (GWP) grew 34.8% YoY/73.7% QoQ on the back of strong new business and healthy renewals. HDFC Life market share (on New Business Premium (NBP) basis) grew 235 bps to 18% from 15% in H1FY21. Its market share among private players is 27.4%. In Q2FY21, channel mix on NBP basis is 60% for bancassurance channel, 13% for agency channel, 6% for brokers and 21% for direct. All channel except direct gained by 100 bps at the cost of direct. Solvency ratio rose to 203% on account of Sub debt of INR 600 Cr and improved equity markets. Net worth improved by 23%YoY to INR 7,790 Cr. Embedded Value increased to INR 23,330 Cr, higher by 16% YoY.

Outlook

The franchise, product and distribution culminates into high quality growth prospects, commanding higher valuation premium. We assign a 4.6x P/EV on FY22E EVPS of INR 151.3 and a higher VNB multiple of 48x on FY22E to arrive at a weighted average TP of INR 704 per share for HDFC Life (50:50 weights on the P-EV and appraisal value methodology); indicating an upside of 23.4% over CMP. Accordingly, we reiterate “BUY” rating on the shares of HDFC Life.

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