HDFC Life Insurance edges lower on subdued Q4 profit growth. Here is what brokerages have to say

Shares of HDFC Life Insurance Company edged lower in early trade on April 27, a day after the life insurer reported a largely unchanged net profit of Rs 359 crore for the fourth quarter. For comparison, the net profit was at Rs 357 crore in the same quarter of the previous financial year.

As a result, at 11.30 am, shares of HDFC Life were trading with a cut of 2.65 percent at Rs 517.50 on the National Stock Exchange.

Sequentially however, net profit was up 14 percent from Rs 315 crore  in the October-December quarter of the financial year 2022-23. For FY23, net profit grew 13 percent to Rs 1,360 crore.

HDFC Life‘s net premium income also increased by 36 percent to Rs 19,426 crore, compared to Rs 14,290 crore in the same period last year. The company’s first-year premium income also saw a rise of 73 percent to Rs 4,467 crore during the reporting period.

The value of new business (VNB) increased by 69 percent year on year (YoY), with margins expanding 240 basis points quarter on quarter (QoQ) to reach 29.3 percent. The embedded value (EV) grew 5 percent QoQ to Rs 39,500 crore.

Here’s what brokerages have to say about the Q4 performance and the stock:

Morgan Stanley 

Global research and broking firm Morgan Stanley has given an “overweight” rating to HDFC Life and raised the target to Rs 700 a share.

HDFC Life’s growth DNA and execution were underscored in the fourth quarter. HDFC Bank’s stake increase to 50 percent will remove a technical overhang and should result in structural business gains, it said.

The firm’s report also said that retail protection has turned a corner and the life insurer’s valuation has de-rated significantly in recent years, making it an attractive investment opportunity.

Morgan Stanley has raised its FY24/25 APE (Annual Premium Equivalent) estimates by 5 percent and VNB estimates by 1-3 percent, indicating confidence in the company’s future performance.

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Jefferies 

The broking firm has a “buy” rating and set a target price of Rs 670 following the company’s Q4 results.

HDFC Life’s 68 percent rise in value of new business was slightly ahead of its estimates, helped by better margins, its analysts said.

Premium growth was also strong, with the share of high-ticket policies rising. Jefferies expects core premium growth to be between 15 and 20 percent and predicts HDFC Life will benefit from higher bancassurance.

CLSA

Brokerage firm CLSA Asia-Pacific Markets assigned an “underperform” rating for HDFC Life Insurance. Though it raised the target price to Rs 560, CLSA cited concerns over the potential challenges HDFC Life may face in the coming fiscal year, given the strong performance in the previous quarter was aided by pre-buying.

While the APE margin benefited from a growth spike, CLSA expects a challenging FY24 for HDFC Life.

On the positive side, HDFC Life’s core Return on Embedded Value surged to 19.7 percent, thanks to a spike in VNB, although CLSA only expects sustainable RoEV of 17-18 percent.

Motilal Oswal Financial Services 

The brokerage has retained its “neutral” rating on HDFC Life with a target price of Rs 610.

HDFC Life remains focused on maintaining a balanced product mix, with a strong emphasis on product innovation and customer service, it said.

The non-PAR/ Annuity segment is expected to see steady growth, while retail protection is reporting a gradual recovery that will boost the overall APE growth, Motilal Oswal said.

It estimates HDFC Life to deliver around 20 percent VNB compound annual growth rate (CAGR) over FY23-25, while the margin is expected to improve to around 29 percent by FY25.

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