The recent changes in Goods and Services Tax rates are drawing attention from brokerages, with Morgan Stanley and UBS weighing in on the impact of this change on HDFC Life.
While both firms assess the overall effect as limited, their ratings and target prices differ due to the diverse views on the company's ability to navigate the changes.
Morgan Stanley: Minimal Impact, Positive Outlook
Morgan Stanly has maintained its "Overweight" rating on HDFC Life with a target price of Rs 890, believing the impact of the new GST norms will be minimal.
The brokerage assesses the effect on the company's Embedded Value to be less than 0.5%, a negligible amount. This positive outlook is based on the GST exemption on reinsurance, which gives HDFC Life a d to better manage the financial impact.
The brokerage also suggests that the company could look to pass on the costs to distributors, particularly for Unit-Linked Insurance Plans or ULIPs.
Additionally, they noted that HDFC Life could leverage the lower cost for customers to encourage higher rider or sum assured attachments, turning a potential headwind into an opportunity for growth.
UBS's Take: Waiting For Clarity, Cautious Stance
In contrast, UBS has maintained a "Neutral" rating with a target price of Rs 845. While also seeing a limited impact on the company's Embedded Value, UBS believes the effect on the Value of New Business margin will be temporary and its magnitude will depend on the company's strategic decisions.
The brokerage notes that the VNB margin impact will be influenced by whether the company opts for product repricing with or without an input tax credit offset, and by any potential reduction in distributor commissions.
Essentially, UBS is taking a more cautious stance, waiting for clarity on how the company will adjust its business model in response to the changes.
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