HDFC Life Insurance: Sharekhan maintain buy rating with target price of Rs 850

For Q3 FY21, HDFC Life Insurance results were mixed, with operational results coming below estimates, but gain in market share with NBM margins improvement sequentially was encouraging, indicating steady recovery from the impact of Covid-19. Better premium recovery mom helped HDFC Life Insurance post market share gain in 9M FY21 to 16.4%, up 214 bps yoy. Improvement in sequential new business margins (NBM of 25.6%) due to higher growth and favourable product mix. HDFC Life Insurance Total annualised premium equivalent (APE) is showing smart recovery and was up by 4% yoy (was down 4% yoy till first half of FY21) to Rs 5491 cr.

HDFC Life Insurance New business premium increased by 11% yoy to Rs 13457 cr for 9M FY21 and value of new business (VNB) was now equalling 9M FY21 (was down by 12% yoy till 6M FY21), helped by favourable business mix. HDFC Life Insurance New business margins improved to 25.6% for 9M FY21 (stood at 25.1% in first half of FY21) as against 25.9% in FY20. Better cost control resulted in better opex ratio due to stringent cost-control initiatives, deferral of discretionary expenses, lower business volumes, and cautious business expansion. Moreover, rise in contribution from bancassurance/own channels (that are lower cost for the company) helped.

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HDFC Life Insurance Management indicated that business is showing traction on mom basis, especially in the individual protection business. HDFC Life Insurance maintained a balanced product mix, and individual APE saw healthy 42% growth in annuity. Among products, Sanchay Par is expected to now improve, as banking channels see improved pickup of business. With increased credit offtake in housing and other segments, we expect credit protect businesses to pick up in FY2022E. As the situation begins to normalise, Sharekhan expects protection and savings products to be the key growth drivers and help HDFC

Life Insurance attract a higher quantum of inflows from Indian households.

Given strong structural fundamentals of HDFC Life Insurance(a robust balance sheet and strong brand image) and high long-term growth potential for the Indian insurance industry in general and HDFC Life Insurance, in particular, Sharekhan sees attractive potential for long-term investors. Sharekhan has a Buy rating on the stock with an unchanged price target of Rs 850.

HDFC Life Insurance - Key positives:

HDFC Life Insurance posted individual WRP (weighted received premium) growth of 19% yoy in Q3; 8% growth in 9M FY21 versus private industry declining by 6% Š
HDFC Life Insurance reported solvency ratio of 202%, helped by strong PAT accretion and a sub-debt raise of Rs 600 cr during the quarter

HDFC Life Insurance - Key negatives:

Return on Equity stood at 18.4% for 9M FY21, down from 21.3% in 9MFY2020 and 20.5% in FY2020