HDFC Life share price: BUY! Company remains the top player in private insurance space, says Anand Rathi

Anand Rathi continued to remain positive on the company and maintained the BUY rating with a revised target price of Rs.745 per share. Life insurance companies were hit hard due to the Covid-19 induced lockdown and had recorded a decline in premium in Q1FY21. Insurers faced challenges in terms of renewal collection and client acquisitions through physical distribution networks. However, the industry witnessed improvement in Q2 FY21 with gradual lifting up of the lockdown and restarting of economic activities. Also, insurance companies benefited from their continued efforts towards pushing their online channels and other digital platforms for customer acquisition and uninterrupted services. 

During Q2 FY21, HDFC Life Insurance Company Ltd. reported 34.8% year-over-year (y/y) increase in gross premium to Rs 1018 cr, driven by strong growth in new business premium as well as renewal premium. Net premium income (net of reinsurance) grew 34.9% yoy to Rs 1006 cr in the quarter. Consolidated profit after tax increased 6.1% yoy to Rs 33 cr million as new business strain was offset by continued profit from back book. Also, solvency ratio came in at 203% as of Sep 30, 2020, increasing from 190% as of Jun 30, 2020, as the company raised sub debt of Rs 60 cr. The ratio continues to exceed the regulatory requirement of 150%. 

Notably, the company registered 2% growth in the first half of FY21 compared to private industry degrowth of 11%. Further, continuing with the growth momentum, HDFC Life reported more than 50% yoy growth in new business premium in the month of October 2020. Also, the company remained top player among the private insurers space with a market share of 22.9%, based on new business premiums. 

In terms of macro scenario, life insurance companies look to benefit as the Covid-19 crisis created further awareness about the necessity of life insurance among the general public which should augment demand for policies. In fact, the industry is witnessing an increase in demand across products, particularly term plans and annuity products. 

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Anand Rathi remains optimistic on the long term growth prospects of HDFC Life given its sound capital position, solid product mix, well-diversified distribution network and significant growth potential in the domestic life insurance industry. Additionally, the company’s focus on targeting new geographies and customer segments, enhancing product offering and bolstering digital capabilities should support growth.