HDFC Life's December quarter performance was largely in line with estimates, though growth and persistency trends were softer, according to Jefferies. Value of New Business stood at Rs 1,000 crore, up 3% annually, while VNB margins declined 200 basis points, impacted by the loss of GST input tax credit. Jefferies said key positives included strong retail protection growth and management's reiteration of its guidance to neutralise the GST-related margin impact by the first quarter of the next fiscal.
Jefferies maintained its 'buy' rating on HDFC Life but cut the target price to Rs 900 from Rs 930, valuing the stock at 2.3x March-28 P/EV.
Annualised premium equivalent grew 11% year-on-year during the quarter, led by over 30% growth in ULIPs, while non-par sales declined 18%. Retail protection grew 46%, aided by GST cuts, and now accounts for 6% of the business mix, up 150 basis points year-on-year. Group term also reported 48% growth, supported by a recovery in MFI disbursements.
Across channels, partnerships and agency grew faster, while banca growth was slower and direct business declined. Jefferies noted that weaker banca growth was partly due to a lower wallet share with HDFC Bank and other banks amid aggressive competition, and said improvement here will be critical for overall premium growth.
Jefferies said the 200 basis point margin decline was due to the loss of input tax credit on GST and lower scale, which offset benefits from a better product mix, improved profitability and higher protection and rider attachments. Management indicated the GST impact would reduce to 100 basis points next quarter and be fully neutralised by the first quarter of FY27, following completion of distributor negotiations, including with banks.
The brokerage flagged a decline in the 13-month persistency ratio to 85% for 9M, from 86% in the first half, mainly due to weaker persistency in non-linked products, leading to negative operating variance. 63-month persistency improved, however. Embedded value stood at Rs 61,600 crore, with ROEV at 16%.
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