Leading brokerage firm Sharekhan has been optimistic about the stock of HDFC Life Insurance Company Ltd. and expect that the stock has the potential to give 31% return if investors buy it at the current price of Rs 565 apiece. The company reported strong business performance across various parameters.
Its total new business premium market share stood at 21% among the private players, making the company the second largest in the private and the third largest in the overall insurance space. Its new business margin increased to 27.4%, an increase of 130 bps y-o-y aided by a balanced product mix.
1. Stock Outlook
The current market price of the stock is Rs 564.85 apiece. The stock has touched a 52-week high of Rs 775.65 apiece and 52-week low of Rs 497.05 apiece. In today's trade the stock witnessed a dip of 1.65%. According to Sharekhan, if investors buy the stock at its current market price of Rs 565, it can potentially give a return of 31% with a target price of Rs 740 apiece.
2. HDFC Life registers robust gross premium growth
HDFC Life reported robust gross premium growth of 19% y-o-y aided by health growth in individual and group businesses. Its individual new business premium grew by 16% y-o-y to Rs. 11,640 crore. The company witnessed an upswing in the savings business on a sequential basis despite the pandemic. The non-participating segment witnessed a 16% growth driven by the launch of new products and continued momentum in the annuity business while the unit-linked segment grew by 29%.
Further, group new business rose by 25% y-o-y to Rs. 12,515 crore primarily led by group credit protect and annuity business. The rise in credit life business during the year is in line with an increase in credit disbursement. Its renewal premium grew by 18% y-o-y on the back of higher new business growth improvement in persistency. The 13th month persistency improved from 85% to 87%.
3. Favourable Product Mix
The company has witnessed healthy growth in the premium primarily driven by diverse and innovative products and a multi-channel approach. The product portfolio consists of 39 retail and 13 group products, along with 7 rider benefits covering the savings, investment, protection and retirement needs of the customers.
It launched numerous products to meet the diverse customer needs such as Sanchay FMP in Non-PAR savings, a regular pay deferred Annuity plan, and a Term variant with riders covering the 3Ds of death, disease, and disability. In FY2022, the company continued to maintain a balanced and profitable product mix, with non-par savings at 33%, participating products at 30%, ULIPs at 26%, individual protection at 6% and annuity at 5%, based on individual APE. The company witnessed improvement in margins aided by a better product profile. For FY2022, its VNB margin stood at 27.4% versus 26.1% in FY2021.
Key Risks: Slowdown in business operations may impact premium growth. Any adverse policies/guidelines may adversely impact its profitability.
According to Sharekhan, "We maintain Buy with an unchanged PT of Rs. 740: HDFC Life trades at 3x/2.5x its FY2023E/FY2024E EVPS. We believe valuations are reasonable, as it has a well-diversified product bouquet (no segment contributing to more than 30% of APE), best-in-class branding, and strong metrics. We believe the company is well placed to deliver strong and sustainable long-term APE growth. Owing to strong fundamentals (robust balance sheet and consistent profitability) and high long-term growth potential for the Indian insurance industry in general and HDFC Life, in particular, we find it to be an attractive long-term bet. We maintain our Buy rating on the stock with an unchanged price target (PT) of Rs. 740."
5. About HDFC Life
Established in 2000, HDFC Life is a leading long-term life insurance solutions provider in India, offering a range of individual and group insurance solutions that meet various customer needs such as Protection, Pension, Savings, Investment, Annuity and Health. As on September 30, 2021, the Company had 38 individual and 13 group products in its portfolio, along with 7 optional rider benefits, catering to a diverse range of customer needs. The market capitalization is Rs 119,362 crore.
The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.