HDFC Life is among the most dominant players in Indian life insurance industry: ICICI Direct

HDFC Life Insurance

Higher Covid claims – near term overhang

About the stock: HDFC Life is among the most dominant players in Indian life insurance industry with strong distribution network, parentage, operating metrics.

 Balanced product mix with focus on non-par and protection business
 Industry leading VNB margins of over 25%

Q1FY22 Results: Business traction healthy, claims rise amid pandemic.

 Gross premium grew at a healthy pace of 31% YoY to | 7657 crore
 VNB margins remained healthy at 26.2% aided by balanced product mix
 Claims rise sharply with peak claims 3-4x higher than during first wave
 Surplus declined to | 59 crore vs. | 283 crore YoY

What should investors do? HDFC Life’s share price has grown by ~2x over the past four years.

 We retain our BUY rating on the stock

Target Price and Valuation: We value HDFC Life at 4.5x FY23E EV with TP of Rs 800

Key triggers for future price performance:

 Calibrated growth in credit protect & focus on retirement product to aid growth
 Strong distribution network remains core to maintain business momentum
 VNB margins to be industry leading above ~26%
 Higher Covid claim remains a near term overhang; reserves at Rs 700 crore

Alternate Stock Idea: Apart from HDFC Life, in our coverage we also like SBI Life

 SBI Life also comes with a strong parentage with strong distribution network and superior cost efficiencies
 BUY with a target price of Rs 1,100