Emkay Global
HDFC Life Insurance Company (Buy)
Target: ₹870
CMP: ₹663.60
HDFC Life has reported VNB (value of new business) margins of 26.2 per cent (+180 bps y-o-y) in Q1FY22. The share of individual protection products declined by about 4 per cent y-o-y as the share of ULIPs rose in overall AUM. The company witnessed disruption in business activities in May; however, other products like annuity and credit life performed well.
HDFC Life saw a steep rise in death claims, with peak claims in the second Covid wave at about 3-4 times of peak claims in the first wave. The company cleared approximately 70,000 claims in Q1, with gross/net claims amounting to ₹1,600 crore/₹960 crore. The company has created an additional reserve of ₹700 crore; however, near-term uncertainties persist.
HDFC Life continues to focus on the diversified distribution channel to create a balanced product mix for optimum profitability. Its balanced product mix provides cushion against business cycles while taking advantage of the under-penetrated protection market.
We expect the trend in margins to remain stable with a balanced product mix and a gradual rise in the share of protection and annuity plans along with increasing penetration in deeper geographies. We roll forward our target price to September 2022 and maintain ‘Buy’ with a revised TP of ₹870 (₹848 previously).