HDFC Life's New Business Value Growth Surprises Brokerages

HDFC Life Insurance Co. Ltd. value of new business during three months to December grew, surprising analysts and brokerages. Most of them maintained their rating and target prices.

Nomura upgraded the HDFC Life Insurance stock to 'buy' from 'neutral', citing sustained delivery on VNB margins during the third quarter. During October-December period, both its total and individual annual premium equivalent, or APE, grew 12% year-on-year, each.

Though, VNB margin slipped 84 basis points on the year, it improved sequentially 174 basis points to 26.1% in the third quarter, leading to VNB growth of 8% year-on-year. Third quarter VNB margin is in line with Nomura's estimates, the brokerage said.

Despites concerns about further impact of surrender value and additional slowdown in growth, Nomura believes the current valuation at twice the one-year forward price to embedded value of the company captures the negatives adequately. Thus, the brokerage upgraded the rating.

"We expect APE/VNB to register 17%/13% CAGRs over FY24-27F (APE/VNB growth of 18%/14% y-y in FY25). Further, we build in VNB margin of 25% (lower than FY24 levels) and average return on operating EV at 17% for FY25F–27F," Nomura said.

HDFC Life Insurance's margins were stronger sequentially due to higher product-level margins, according to Bernstein. It restated business profit growth guidance of 15% for the current financial year.

Antique believes that margins seem to have bottomed out as the non-par segment recovered 55% growth . Its target price implies FY27E P/EV of 2.4 times, the brokerage said. HDFC Bank Life Insurance's management remains confident of 18–20% APE growth, and more than 15% VNB for financial year 2025, Antique said.

Nirmal Bang Institution tweaked FY25/ FY26 VNB margins upwards factoring in an improved trend in third quarter and value HDFC Life Insurance using the Appraisal Value framework, the brokerage said.

HDFC Life Insurance expects new product launches in PAR portfolio, which will drive growth in the fourth quarter. New customer acquisitions and deeper expansion into Tier II and III markets, Nirmal Bang Institutions said.

HDFC Life Insurance's management changed the commission structure with the introduction of claw-back provision, and deferring the commission or by reducing commission, which mitigated the impact of the new surrender regulations, Motilal Oswal Financial Services said. "To bake in the Q3 developments, we increase our APE estimates by 1% and VNB margin estimates by 10-40 basis points, resulting in a 2–3% increase in VNB over FY25–27E."