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HDFC Life Q1FY23 review – Business growth healthy; merger remains overhang

ICICIdirect Research 20 Jul 2022 DISCLAIMER

What's Buzzing

HDFC Life reported healthy set of numbers in Q1FY23, wherein gross premium growth remained strong at 22.7% YoY and VNB margin expanded to 26.8% aided by balanced product mix. PAT reported strong growth of 20.8% YoY led by healthy growth in net premium.

Context

Healthy growth seen in gross premium at 22.7% YoY, led by traction across product segments. Market share remained steady at 19% while new business margin remained buoyant at 26.8%. AUM increased 10.4% YoY to Rs 200123 crore, while Embedded value (defined as sum of NAV and present value of future profits) grew by 8.7% YoY to Rs 29709 crore (rise in yields impacted QoQ EV trajectory with de growth of 1.1%).

Our Perspective

HDFC Life is a dominant player in Indian life insurance industry with strong distribution network, parentage and operating metrics. Balanced product mix with focus on high margin protection business has enabled to clock industry best margins. Given insurance under-penetration and increasing product awareness, demand for insurance is expected to remain buoyant. Focus on product innovation and diversified distribution network is set to drive HDFC Life's new business premium growth at ~22% CAGR in FY22-24E, while focus on operational efficiency and improving persistency will support earnings and growth in Embedded value at 24% CAGR in FY22-24E. Thus, underlying fundamental strength remains strong. However, weak outlook on high margin retail protection business and clarity on HDFC Ltd's stake post HDFC Bank and HDFC Ltd merger is seen to keep price movement in a range in near term.

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