Here's Why Most Analysts Retain 'Buy' On HDFC Life After Q3 Earnings

The merger between HDFC and HDFC Bank will be the key driver for the insurer's shares in the near term, according to Emkay Global.

<div class="paragraphs"><p>Source: Unsplash</p></div>
Source: Unsplash

Most analysts retained their 'buy' ratings on HDFC Life Insurance Co. after the third-quarter earnings, citing stable and in-line performance.

New business margins will remain unchanged in FY23 as guided by the management earlier after its merger with Exide Life Insurance Co., analysts said. The nine-monthly performance has proved the same.

The merger between Housing Development Finance Corp. and HDFC Bank Ltd. is expected to be the key driver for the insurer's shares in the near term, according to Emkay Global.

The private life insurer’s net profit rose 15% year-on-year but declined 4% sequentially in the quarter ended December. Its revenue rose 38% in the quarter with net premiums rising 19% over the previous year.

Value of new business—present value of the future profits associated with new business written during the period—grew 22% to Rs 2,163 crore post merger for the nine months ended December 2022. VNB margin was unchanged at 26.5% against a year ago.

Shares of the company eased 0.10% to Rs 589.95 apiece as of 12:52 p.m., while the benchmark Nifty 50 gained 0.31%.

Of the 33 analysts tracking the company, 31 maintain a ‘buy’ while two suggest a ‘hold’, according to Bloomberg data. The 12-month consensus price target implies an upside of 19.8%.

HDFC Life Insurance Q3 Results: Profit Rises 15%, Misses Estimates

Here’s what brokerages have to say about HDFC Life’s Q3 FY23 performance:

Motilal Oswal

  • Maintains ‘neutral’ with a target price of Rs 670 apiece, implying an upside of 13%.

  • HDFC Life reported a stable Q3FY23 performance with in-line annualised premium equivalent/value of new business and healthy premium growth led by renewal premium.

  • APE rose 26% year-on-year fueled by annuity, non-linked savings and credit life.

  • Demand for ULIP was soft due to volatile capital markets while trend in retail protection improved quarter-on-quarter.

  • HDFC Life aims to maintain its FY22 margin (27.4%) in FY23 as well since it targets to have margin neutrality post-merger with Exide Life.

  • On the distribution front, the share of banca increased to 62% while agency channel constituted 18% share. This increase was at the cost of direct channel as it continues to face headwind in the form of heightened competition.

  • The company expects to deliver an industry leading growth in the coming years.

  • VNB is likely to grow at 18-20% over the medium term according to the management.

  • Retail protection is likely to see further traction going ahead.

  • The company remains focused on maintaining a balanced product mix, with an emphasis on product innovation and superior customer service.

  • In the near term, non-par/ annuity are likely to witness healthy growth while retail protection is posting a gradual recovery.

  • Credit life will lead to growth in protection as the momentum in disbursements across lending institutions remains strong.

  • Demand for ULIP remains muted due to volatile capital markets.

  • Persistency trend improved across all cohorts will keep the renewal premium growth healthy.

Emkay Global

  • Maintains ‘buy’ with a target price of Rs 700 apiece, implying an upside of 18%.

  • Satisfactory performance in 9M/Q3FY23, with headline numbers coming in line with expectations.

  • On the product side, credit life maintained its strong run while retail protection appears to be turning the corner.

  • On the distribution front, banca and agency both contributed to the company’s robust growth.

  • The integration of Exide Life post the merger and synergy accretion is progressing well.

  • Management reiterated FY23 VNB margin guidance of the merged entity to be at par with pre-merger VNB margin.

  • Considering Exide Life’s existing cost structure and increased cost in customer acquisition in open architecture, banca channels have resulted in a slightly elevated cost structure for the company.

  • Overall, 9MFY23 developments at HDFC Life come on anticipated lines.

  • With the Exide Life merger behind, the company is on track to deliver profitable growth.

  • The merger process and modalities of the HDFC-HDFC Bank merger are likely to be the key drivers for HDFC Life’s shares in the near term, besides the operating performance.

ICICI Securities

  • Maintains ‘buy’ with a target price of Rs 740 apiece revised from Rs 755 earlier, implying an upside of 25%.

  • Positive on the company. Growth levers ahead for HDFC Life include increasing HDFC Bank channel share, and maximising reach in tiers-2/3 cities and beyond with channels like Exide Life / India Post Payment Banks / AU Small Finance Bank.

  • There is notable improvement in volumes and outlook on retail protection.

  • HDFC Life could gain market share within the HDFC bank channel post the merger of HDFC Bank and HDFC Ltd as per the management.

  • Expect HDFC Life to benefit from the Exide Life merger, which can improve productivity of the agency channel.

  • Factor-in 27% margins for the merged entity in FY23 and 30% in FY24.

  • The margin increase assumption takes into account a combination of merger synergies (more than 20% of the branches of the combined entity can potentially be closed), increase in protection (retail as well as group) and increase in persistency.

  • Risks: Lower demand in high-margin segments such as non-par and protection and volatile interest rates movements.