HDFC Bank’s support, new products to propel HDFC Life’s performance: Analysts

CLSA has upgraded its rating for HDFC Life from “Underperform” to “Outperform” and increased the target price to Rs 725 from rs 680 per share.

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Despite missing estimates for the quarter ended September, analysts remained bullish on HDFC Life Insurance because of product launches, granular growth and support from parent HDFC Bank.

In Q2 FY24, HDFC Life reported an annualised premium equivalent (APE) of Rs 3,045 crore, missing the market estimate of Rs 3,201 crore. APE is essentially a measure of sales for a life insurer.

Value of new business for the quarter came in at Rs 801 crore, compared to estimates of Rs 882 crore. Following the results, the stock opened higher on October 16 but quickly erased gains and traded flat at Rs 622.40 on the NSE at 10:20am.

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CLSA has upgraded its rating for HDFC Life from ‘underperform’ to ‘outperform’ and increased the target price to Rs 725 from Rs 680 per share.

In the first half of the year, there was a flat year-on-year VNB margin of 26.2 percent, mainly due to higher sales of lower-margin products, CLSA noted. But, the bank’s distribution channel witnessed strong growth, driven by HDFC Bank as the management indicated that its counter share improved to 62 percent as against 57 percent in Q1.

“Despite the opposing themes, HDFC Life continues to establish itself as a steady performer,” CLSA said.

Nomura too is positive on HDFC Life’s growth momentum and has a ‘buy’ rating with a target price of Rs 800. It believes HDFC Life’s distribution strength in smaller cities and strong support from the parent company are expected to help HDFC Life’s APE regain momentum in the second half of the fiscal year.

HDFC Life has guided for full-year APE growth of mid-teen digits for FY24, and Nomura maintains estimates for APE and VNB growth at 6 percent and 5 percent for FY24.

High-ticket sized policies under pressure

In the Union Budget 2023, Finance Minister Nirmala Sitharaman had announced that income from traditional insurance policies where the premium was over Rs 5 lakh would no more be exempt from taxes.

The HDFC Life management said they were seeing pressure on sales of high-ticket policies in the agency and broker channels. “However, they (management) seemed confident of being able to overcome this pressure by increasing sales of lower ticket sized policies,” according to Madhukar Ladha of Nuvama Institutional Equities.

“They were hopeful that the high-ticket-size segment would also see a revival as individuals would come to terms with the fact that insurance was still providing one of the best return outcomes even on a post-tax basis,” he said.

In this context, new product launches bode well for the company. HDFC Life launched two new products in the protection category – HDFC Life Sanchay Legacy catering to middle-aged and Click 2 Protect Elite catering to a more
affluent customer category.

“The company plans to launch new products in other categories in the second half of the year,” he said. Nuvama has a ‘buy’ rating on the stock with target price of Rs 750.

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