Buy HDFC Life Insurance Company; target of Rs 685: Anand Rathi

Anand Rathi 's research report on HDFC Life Insurance Company

HDFC Life Insurance Company Ltd. reported 34.8% year-over-year (y/y) increase in gross premium to ₹101,825 million in Q2FY21, driven by strong growth in new business premium as well as renewal premium. Net premium income (net of reinsurance) grew 34.9% y/y to ₹100,567 million in the quarter.  The quarter witnessed higher commission expenses along with increases in benefits paid and change in actuarial liabilities. Consolidated profit after tax increased 6.1% y/y to ₹3,278 million as new business strain was offset by continued profit from back book.  13th month persistency rate improved to 88% in the reported quarter compared to 87% in Q2FY20 while 61st month persistency rate remained stable at 53%.  As of Sep 30, 2020, the Assets under Management (AUM) stood at ₹1,506 billion, increasing 15% y/y. The debt:equity mix stands at 67:33 with almost 97% debt investments are in G-Secs and AAA bonds as on Sep 30, 2020.

Outlook

We have incorporated latest quarterly numbers and have revised our estimates for the company. We believe HDFC Life is well positioned for long term growth given its strong market position, solid product portfolio with lower ULIP mix and increasing protection business, diversified distribution network, healthy capital position and favorable traits in the domestic life insurance industry. We continue to remain positive on the company with a BUY rating and a target price of ₹685 per share.

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