HDFC Life shares fall 2% post mixed Q3 performance; here’s what brokerages say

While the company’s net premium income rose 6 percent YoY led by 131 percent YoY growth in investment income, first-year premium experienced a slight dip of 2 percent YoY

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Shares of HDFC Life Insurance Company fell over 2 percent to Rs 624 per share on January 15 after the company’s muted October-December quarter (Q3FY24) performance received mixed response from brokerages. Going ahead, analysts believe that execution and regulatory proposal outcomes will be key for the life insurer.

Analysts at Nomura shared a ‘buy’ rating for HDFC Life but reduced the target price to Rs 760 per share, saying that FY24 would be a washout fiscal for the company. “The company reported growth moderation in Q3FY24 with individual and total annual premium equivalent (APE) declining 4 percent or 7 percent year-on-year (YoY),” the brokerage firm said.

Meanwhile, those at Motilal Oswal retained a ‘neutral’ call for HDFC Life with a target price of Rs 700 per share, adding that the growth outlook appeared steady. “We estimate HDFC Life to deliver 15 percent value of new business (VNB) compounded annual growth rate (CAGR) over FY23-26 and margin to improve to 29.4 percent by FY26,” analysts said.

ALSO READ | HDFC Life Insurance Q3 results: Net profit rises 16% to Rs 365 crore

HDFC Life’s net profit jumped 16 percent YoY in Q3FY24 driven by higher investment income. While the company’s net premium income rose 6 percent YoY led by 131 percent YoY growth in investment income, first-year premium experienced a slight dip of 2 percent YoY. Analysts believe the demand for higher-ticket size policies was subdued during the quarter owing to taxation changes.

As a result, APE declined 2 percent YoY in Q3FY24. Analysts at Kotak Institutional Equities said that a likely slowdown in earnings growth at its parent HDFC Bank may have impacted APE growth for the insurer.

That apart, the life insurer’s VNB – the present value of future profit associated with new business fell 2 percent YoY in the December-ended quarter, thereby resulting in a marginal contraction of VNB margins to 26.8 percent.

ALSO READ | Neutral HDFC Life Insurance; target of Rs 700: Motilal Oswal

Against this, the management remained optimistic about its growth prospects driven by sustained growth in less than Rs 5 lakh ticket size, anticipated stability in the macro-environment that could increase allocation to insurance products, expansion of new relationships, and the forthcoming full-year impact of counter share at HDFC Bank developments.

“While protection has picked up momentum, the growth in the Non-PAR segment is likely to be concentrated in the later part of the year. Growth in lower tier cities will be the key focus areas with the expansion of HDFC Bank’s branch network and deepening of HDFC Life’s branch network,” said analysts at Motilal Oswal.

In the past month, the stock of HDFC Life fell over 5 percent as against a 2 percent rise in the benchmark Sensex.

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