HDFC Life Q3 Results Review: Analysts Trim Key Estimate On Slower Growth

Most analysts have cut the value of new business estimates and lowered target price targets for HDFC Life Insurance Co. , citing slower growth. The private insurer’s net profit rose 16% year-on-year to Rs 368 crore but fell 3% sequentially in the quarter ended December, according to the exchange filing.

HDFC Life’s revenue was up 36% in the quarter, with net premiums rising 6% over the previous year. The value of new business—the presen. .

. Most analysts have cut the value of new business estimates and lowered target price targets for HDFC Life Insurance Co. , citing slower growth.

The private insurer’s net profit rose 16% year-on-year to Rs 368 crore but fell 3% sequentially in the quarter ended December, according to the exchange filing. HDFC Life’s revenue was up 36% in the quarter, with net premiums rising 6% over the previous year. The value of new business—the present value of the future profits associated with new business written during the year—fell 2% to Rs 856 crore in Q3.

The VNB margin fell to 26. 83% as against 26. 84% in Q3 last year.

Expansion to Tier 2 and Tier 3 is expected to support annualised premium equivalent growth over the next two years, according to CLSA but it has reiterated caution on long-term margins. Most brokerages have said that the final regulation on changes in surrender charges is an overhang. Shares of the company were trading 1.

15% lower at Rs 630. 20 apiece in the pre-open indicative price at 9 a. m.

, compared with a 0. 61% rise in the benchmark Sensex. Of the 34 analysts tracking the company, 27 maintain a ‘buy’, and seven suggest a ‘hold’ according to Bloomberg data.

The 12-month consensus price target implies an upside of 17. 2%. ALSO READ HDFC Life Insurance Q3 Results: Profit Up 16%, Value Of New Business Falls 2% Opinion HDFC Life Insurance Q3 Results: Profit Up 16%, Value Of New Business Falls 2% Read More Here’s what brokerages have to say about HDFC Life’s Q3 FY24 performance: Citi Research Maintains ‘neutral’ with target price revised lower at Rs 675 apiece (earlier Rs 710), implying a downside of 6%.

Lacklustre Q3 (VNB -2% year-on-year) was driven by muted annualised premium equivalent (-2% year-on-year) and flat margins. Rising sum assured per policy and rider attachment in the fast-growing ULIPs and higher retail protection supported margins. This was even as non-par and annuity mix compressed sharply.

A regulatory overhang on margins owing to proposed changes in surrender charges is likely to drive cautious investor sentiment. Raise medium-term embedded value estimates by 1% on favourable investment variance in base. Trim medium-term VNB estimates by 3–5% on slower growth.

Private peers trade at a 40–50% discount to HDFC Life on P (ex-EV) or VNB. Expect the valuation premium to gradually moderate. Motilal Oswal Maintains ‘neutral’ with a target price of Rs 700 apiece, implying an upside of 12%.

Reported lower-than-expected performance with total APE, 7. 3% below estimates. VNB margins, at 26.

8%, fell 70 basis points below expectations. Growth in the tier 2 and tier 3 towns has been 2 times that of the company and has accounted for 65% of the overall topline. Key focus areas: — Growth in lower-tier cities — Expansion of HDFC Bank’s branch network and — Deepening of HDFC Life’s branch network.

The final regulation on changes in surrender charges will continue to be an overhang. Cuts VNB margin assumptions based on 9MFY24 performance. Estimates HDFC Life to deliver around 15% VNB CAGR over FY23–26 and a margin to improve to around 29.

4% by FY26E. Jefferies Maintains ‘buy’ with a target price of Rs 800 apiece, implying an upside of 25%. HDFC Life’s APE and VNB both declined by 2% year-on-year, softer than estimates.

The drags were from: (1) weaker premiums from the above Rs 5 lakh segment (share halved) and (2) shift of demand to low-margin ULIPs that management did not want to chase. Key positives were: (1) Higher wallet share in HDFC Bank, now at mid-60s versus mid-50s earlier (2) margins stable year-on-year (3) new, non-par product gained better traction. Trim the VNB estimate by 2–3%, factoring in weaker premiums compensated by a tad better margins (due to mix changes).

See HDFC Life delivering 18% CAGR in premiums and VNB from FY25 onwards. On the proposal for lower surrender charges, while this will be a risk to margins, the industry is working on ways to mitigate the impact. This would be through managed reduction and pass through to distributors as commissions change.

CLSA Maintains ‘outperform’ but lowers target price to Rs 700 apiece from Rs 725 apiece earlier, implying an upside of 10%. Reported a flat year-on-year VNB margin of 26. 5% in 9MFY24 This is despite a higher ULIP mix, as protection and high-sum assured sales were strong.

APE growth of 5% year-on-year in 9MFY24 could slow to 0% for FY24 as a high base kicks in. The company’s plan to enter Tier 2/3 cities should support a recovery in APE growth over the next two years. Reduces FY24 VNB margin by 30 basis points as per the 9M run rate.

Reiterates caution on long-term margins. .