HDFC Life share price: Motilal Oswal and ICICI Securities ring in upgrades
Motilal Oswal says HDFC Life remains focused on maintaining a balanced product mix across the business, with an emphasis on product innovation and superior customer service. However, in the near term, the Non-PAR and PAR segments are likely to see healthy growth, while ULIP also continues to recover
Motilal Oswal says HDFC Life remains focused on maintaining a balanced product mix across the business, with an emphasis on product innovation and superior customer service. However, in the near term, the Non-PAR and PAR segments are likely to see healthy growth, while ULIP also continues to recover. However, Motilal Oswal says it remains watchful of the impact of lockdown announced in various key states due to resurgence in COVID-19 cases. Overall, Motilal Oswal has estimated VNB margins to reflect stable trends and estimates operating RoEV to remain healthy at 18% over FY23E. The stock currently trades at rich valuations of 3.9x FY23EV (25x FY23 EVOP). Motilal Oswal has valued the stock at Rs 730, corresponding to 4x FY23E EV. Maintain Neutral rating on the stock.
Motilal Oswal says HDFC Life reported improvement in new business APE (led by the Non-PAR and PAR businesses), while the trend in Retail Protection remained muted. VNB margins improved to 27%, aided by a rise in Non-PAR as well as cost control. Thus, absolute VNB grew 52% YoY in 4QFY21. On the persistency front, better trends were witnessed in the PAR/Protection business. As a result, 13th/25th month individual premium persistence improved 200bp/500bp YoY. Overall, Motilal Oswal expects HDFC Life to reflect 22% VNB growth over FY21–23E. Motilal Oswal estimates margins to remain steady at 26.4%, and operating RoEV would sustain at a healthy 18%.
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ICICI Securities says that HDFC Life has pulled off a strong FY21 with 14%/13% VNB/APE growth on FY20 APE base of >Rs70bn. This was driven by banca (29% individual APE growth in FY21) and par (107% individual APE growth in FY21). With available growth levers for volumes as well as margins, we remain optimistic on the company’s ability to maintain more than 15% APE growth trajectory with improving margins. ICICI Securities upgraded HDFC Life the stock to BUY from Add with target price of Rs 841.
ICICI Securities highlights that multiple growth levers remain in place:
1) recovery of credit protect NBP (26% YoY growth in Q4FY21 though it declined 19% in FY21) (this was always an available lever and will remain so in FY22E notwithstanding possible disruption due to covid second wave; this is also a margin lever)
2) higher growth in agency/direct business, up 8% / 0.1% in FY21 (HDFC Life also forged new partnerships in FY21 with Yes Bank, SBI Capital Markets, State Bank of Mauritius, Doha Bank, Edelweiss)
3) better enablement of medical underwriting (HDFC Life followed a calibrated growth strategy in retail protection due to supply-side constraints and headwinds to medical testing, especially beyond tier-1 locations)
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