ICICI Securities: HDFC Life Q1 Reports Steady Show, Business Externalities Challenging

ICICI Securities Report

HDFC Standard Life Insurance Company continues with a diversified product and distribution strategy as it increased retail protection and par mix while non-par saving category declined on high base of Sanchay Plus in Q1 FY20. Volume decline due Covid-19 and disruption in the credit protect channel (Group protection annualized premium equivalent (APE) declined 81% YoY) led to 160 basis points QoQ decline in of new business (VNB ) margin to 24.3% in Q1 FY21. VNB growth declined 43/85% YoY / QoQ to Rs 2.9 billion in Q1 FY21. Product suite has become stronger with new high-margin par and group protection products.

Assuming overall challenging business conditions for non-par savings and group credit along with the already witnessed decline in VNB in Q1 FY21, we estimate 3%/20% APE growth in FY21E/FY22E with VNB margin increasing to 26%/30% in the respective years. We expect HDFC Life to accumulate Rs 46 billion of new business and Rs 34 billion of unwind (at 7.5%) over FY21E/FY22E to reach embedded of Rs 290 billion by FY22E. We HDFC Life at 40 times new business of Rs 26 billion in FY22E. At our target price of Rs 663, FY22E P/EV stands at 4.6 times.

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