HDFC Life Shares Hit All-Time High On Management’s Optimistic Outlook
(Photographer: Akio Kon/Bloomberg)

HDFC Life Shares Hit All-Time High On Management’s Optimistic Outlook

Shares of HDFC Standard Life Insurance Co. hit an all-time high after the management expressed optimism about growth in premiums and sustaining margins near previous fiscal levels despite the pandemic-induced disruption.

While mortality experience has been slightly worse than the past, the company has adequate reserves for it, Chief Financial Officer Niraj Shah said during an investor call hosted by Jefferies India.

Jefferies India said in its note that this should not have a material impact on margins as the company had made some buffer provisions in FY20 itself.

Shah cited scaling up agency distribution and maintaining a balanced mix of premiums and channel contributions as the company's medium-term targets.

On another investor call hosted by ICICI Securities, the management said high single-digit growth in annualised premium equivalent and value of new business is a realistic possibility in FY21.

Shares of HDFC Life gained as much as 3.7% to a record of Rs 688.5 apiece. While the stock fell off the day's high, it has doubled from its 52-week low of Rs 339.1 on March 23.

Of the 34 analysts that track the stock, 21 have a 'buy' recommendation, eight suggest 'hold' while the others have a 'sell' rating.

Other highlights from the Jefferies investor call:

  • Guaranteed-return book is well hedged.
  • Expect mid-teens growth in premiums in FY22.
  • FY21 new business margins likely to be similar to FY20, while margin expansion in FY22 should drive ~20% growth.
  • Focus on non-bancassurance channels needs to be backed by variablisation of costs.
  • Looking to increase contribution from its agency channel to 25% from 13-14% of premiums currently.

Jefferies expects an annualised growth of 18% in premiums over FY20-23. That will drive a 17% annualised growth in value of new business and 18% growth in return on embedded value in FY22.

Highlights from ICICI Securities call:

  • Non-promoter group bank channel will be incrementally important across the industry.
  • Reinsurance cycle will inhibit any major price cuts in the near-term.
  • Guaranteed return plan will continue to be carefully managed within the asset-liability management framework.
  • Operating performance remains disciplined but some cost savings can get reversed with growth.
  • New products to strengthen the product mix.
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