Emkay Global Financial's report on HDFC Standard Life Insurance
VNB margins saw another quarter of a sharp surge of ~60bps qoq to 26.3% (+180bps yoy) in Q3FY21 (25.6% for 9MFY21) due to a change in the product mix and an active role of distribution mix. Absolute VNB grew ~27.1% yoy (+3.55 qoq) amid a rise in demand post Covid-19-related lockdowns. HDFCSL utilized its distribution mix in most effective manner. In spite of a steep rise in the share of bancasurance channels to ~63% of distribution mix from ~50% in FY20, the share of ULIPs was capped at ~23%. Savings products grew to ~65% from ~60% in FY20. The company saw a rise in term plans post normalization of demand for credit protect policies. HDFCSL’s balanced product mix provides cushion against any business cyclicality while taking advantage of the grossly underpenetrated protection market. We expect the trend in margins to improve gradually with the rising share of protection plans and increasing penetration in deeper geographies.
Outlook
We increase our VNB margin estimate to 27.5% for FY23E (27% earlier), supported by an increase in the share of profitable product mix along with operating efficiency kicking in. We retain Buy/OW in EAP with a TP of Rs786, corresponding to ~4.3x P/FY23 EV.
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