HDFC Life Q2 Review: Analysts Stay Optimistic Despite Rise In Covid Claims

Analysts remained upbeat on HDFC Life Insurance Co. after the second quarter, citing its improved ability to retain clients, healthy new business margin and balanced product mix.

The private life insurer’s revenue jumped by more than half sequentially in the quarter ended September, while net profit rose 2%, according to its exchange filing. In the half year ended September, net profit fell 26% as Covid-19 claims surged during the second wave of the pandemic.

Shares of HDFC Life shed more than 2% in early trade on Monday compared with a 0.16% decline in the Nifty 50. Of the 39 analysts tracking the insurer, 26 have a ‘buy’ rating, 12 suggest a ‘hold’ and one recommends a ‘sell’, according to Bloomberg data. The average if 12-month price targets implies an upside of 14.6%.

Here’s what brokerages have to say about HDFC Life’s second-quarter performance:

• Maintains ‘neutral’ with a target price of Rs 750 apiece, implying an upside of 9%.

• On the annual premium equivalent front, the individual protection business declined 8% year-on-year, while strong trends continued in the annuity and credit life segment.

• Unit-linked insurance product bounced back strongly, but the growth trajectory would depend on the performance of the capital market.

• The company reported an in-line growth in premium, led by growth in the first year/renewal premium.

• There was a miss on shareholders’ earnings by 20% due to higher Covid-19 claims settled.

• Embedded value operating profit after tax growth stood flat year-on-year over H1 FY22.

• The management remains focused on maintaining a balanced product mix across the business.

• In the near term, non-participating/annuity/credit life likely to witness healthy growth.

• Persistency trends remain steady across cohorts and will continue to aid robust renewal trends.

• The management said new bancassurance partners such as ICICI Securities, IDFC First Bank, Bandhan Bank and Yes Bank are showing robust traction in new business premium.

• Claims were higher in group protection, while robust trends continue in the credit life segment.

• Maintains ‘buy’ with a target price of Rs 880 apiece, implying an upside of 26.7%.

• Operating parameters, including persistency, product mix, distribution mix and cost ratios, were broadly stable.

• The result was broadly in line with expectations and the management commentary was also consistent with past guidance.

• The shift in the product mix more toward annuity and protection products and operating leverage should support this consistent margin expansion in the coming years.

• With above industry growth in the medium term and gradually improving industry-leading margins, the company should be able to compound embedded value at about 20% in the medium term.

• Not factored in the Exide Life merger scenario.

• Maintains ‘buy’ with a target price of Rs 867 apiece, implying an upside of 25%.

• The management has maintained a balanced product mix rather than being swayed by ULIP growth in the current (favourable) market environment.

• The management has highlighted that it is averse to surrenders, which tend to be high in ULIPs, especially if the equity market enters a bearish phase.

• Growth in non-linked savings has been higher, while protection grew 41.3% in H1 FY22 on back of higher volumes in credit protect.

• The company has received intimation regarding reinsurance rate hike and

  the same is likely to be passed on without diluting the existing margin profile.

• Overall claims experience has been in line with expectations.

• The management’s conscious effort to cap ULIP exposure at 25-26% and pursuing higher growth in non-linked segments has resulted in higher margin sequentially.

• Maintains ‘buy’ with a target price of Rs 850 apiece, implying an upside of 23%.

• Business traction healthy, elevated claims impact earnings.

• Value of new business margins remained healthy at 26.4%, aided by a balanced product mix.

• Claims remained elevated amid the pandemic; provision buffer at Rs 204 crore.

• Focus on credit protect and retirement product to aid business growth.

• Strong distribution network remains core to maintain business momentum.

• VNB margin to be industry-leading at about 26%, led by balanced product mix.

Risks

• Higher growth in ULIP could lower margin.

• Hike in premium rates to impact growth.

• Maintains ‘neutral’ with a target price of Rs 775 apiece, implying an upside of 12.2%.

• The company’s recent underperformance is gradually reducing the valuation gaps versus peers.

• Do not see any meaningful rerating catalysts in the near term as well, with protection business still struggling.

• Positive on HDFC Life’s ability to switch between products/ channels and product innovation aiding industry-best growth and profitability.

• Individual APE of +23% year-on-year (H1 FY22) on a relatively less impacted base (versus peers) aided HDFC Life to gradually gain market share.

• Protection growth was supported by the uptick in credit protect, while retail protect struggled due to supply-side constraints.

• Maintains ‘buy’ with a target price of Rs 850 apiece, implying an upside of 23%.

• For Q2 FY22, HDFC Life reported a 24% year-on-year rise in VNB, in line with estimates.

• This was driven by growth in APE and year-on-year margin expansion.

• June 2021 excess mortality reserve of Rs 700 crore has sufficed for lagged claims.

• PAT was 3% lower versus estimated at Rs 270 crore.