This Largecap Stock Is At A 52-Week Low, Time To buy For 25% Returns

Good Financial performance

HDFC Life reported a robust performance amid challenging external environment, according to broking firm Emkay Global.

The company reported 17% YoY growth in APE in FY22 to Rs 97.6 billion and 22% YoY growth in VNB to Rs 26.8 billion on a standalone basis.

"VNB margin for FY22 stood at 27.4% (+1.3ppts YoY) vs. 26.5% for 9MFY22. HDFC LIFE posted a 2-year CAGR of 17% in RWRP, higher than the 9% CAGR for the industry and 14% CAGR for private players. The Exide Life merger and integration process is expected to be completed in FY23. The standalone operating RoEV in FY22 was 16.6% (-2.5% impact from excess mortality on account of Covid-19). The EV for FY22 stood at Rs 300.5 billion after paying out Rs 7.26 billion in cash to Exide Life promoters as part of the acquisition," Brokerage firm Emkay Global has said.

Board approves Rs 3.5 billion sub-debt raise to boost solvency

According to Emkay Global, the solvency margins for FY22 stood at 176% (vs. 190% at 9MFY22 and 201% at FY21). About 13% of the decline in solvency was due to the Rs7.26bn cash payout to Exide Life promoters. Around 11-12% of the solvency dip was due to excess mortality charges of Rs6.5bn pertaining to Covid-19. Adjusting for these two factors, YoY solvency remained broadly flat and the company would have generated organic capital to fund growth.

"The board has approved a proposal to raise up to Rs3.5bn in non-convertible debenture that will likely boost the solvency ratio by 6ppts. Management remains open to capital raise via a mix of debt and equity (only if needed) to fund any profitable growth opportunity. The targeted solvency ratio remains 180%," Emkay Global has said in its report.

Management confident about FY23 growth and margin outlook

Emkay Global has said that the management sounded confident about achieving APE growth that is 2x the real GDP growth while gradually expanding standalone margins. "The margin expansion will be supported by the return of growth in retail protection, operating leverage and some shift in savings products to better margin-yielding products. Regarding the impact of the HDFC-HDFC Bank merger, management sees scope for improved cross-selling and possibly some scope for cost reduction in the HDFC Bank channel once the deal closes," the brokerage has said.

Buy the stock with a price target of Rs 690

Emkay Global has revised its target price to Rs 690 implying FY23E P/EV of 3.8x: "To reflect FY22 developments, we have tweaked our estimates slightly and have introduced FY25 estimates. We increase our target price to Rs 690 from Rs 670 as we roll forward to Jun'23 TP and slightly increase VNB margins. We continue to value HDFC Life standalone on the appraisal value method and assign 2x FY23E P/EV to Exide Life. Notwithstanding near-term turbulence, HDFC Life warrants a premium valuation for its consistent robust performance. We reiterate our Buy rating on the stock," the brokerage has said.