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Stock To Buy: Sharekhan Suggests 'Buy' HDFC Life For 32% Potential Returns

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Sharekhan has published a report on HDFC Life Insurance Company (HDFC Life) and recommends buying for an estimated target price of Rs 740 per share. 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 second largest in the private and 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 and the value of new business grew by 22% y-o-y to Rs. 2,675 crores.

 

Stock Outlook

Stock Outlook

The current market price (CMP) of HDFC Life is Rs 564.85 per share, it was opened at Rs 581 per share on July 5, 2022. The HDFC Life's CMP is Rs 67.8 above the 52-week low of 497.05 per share. The 52-week low was recorded on 08 March 2022. The 52-week high is Rs 775.65 per share, recorded on 2 September 2021. According to Sharekhan's estimated target price of Rs 740 per share and the CMP, which is Rs 564.85 per share, the stock has the potential to gain nearly 32% in 12 months period. The stock has given 19.23% of positive returns in 3 years, and 16.68% of negative returns in 1 year.

Stock Details 
CMPRs 564.85
Target PriceRs 740
Potential Gains32.00%
1-Year Returns-16.68%
3-Years Retruns19.23%
Market CapRs 1,19,331 Crore
ROE8.50%
Delivering well on growth
 

Delivering well on 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%. For the month of May 2022, HDFC Life Insurance reported a premium growth of 62% y-o-y (4% m-o-m). On individual APE business, it reported a growth of 52% y-o-y in May 2022 and ~34% m-o-m. For HDFC Life, policy growth stood at 30% m-o-m and 13% y-o-y. In FY22, the company launched multiple products such as Sanchay FMP, Quick Protect and Systematic Retirement Plan. Š

Favourable product mix

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. With this margin expansion, 130 bps was on account of a better product profile and 80 bps was due to fixed cost absorption.

Diversified distribution model

Diversified distribution model

HDFC Life has a diversified distribution model spanning online and offline channels with nearly 300 partners across India. The company tied up with have tied-up with new partners such as South Indian Bank and PhonePe during FY2022. In FY2022, bancassurance contributed 60% of the individual APE.

Sharekhan maintain Buy with a Target Price of Rs. 740

Sharekhan maintain Buy with a Target Price of Rs. 740

HDFC Life trades at 3x/2.5x its FY2023E/ FY2024E EVPS. The brokerage said, "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."

According to Sharekhan, the key risks to their buy call would be, "Slowdown in business operations may impact premium growth. Any adverse policies/guidelines may adversely impact its profitability."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.

Story first published: Tuesday, July 5, 2022, 22:50 [IST]
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