HDFC Life’s Q4 shows robust profitability; outlook foggy amid second wave


MUMBAI: The March quarter performance of HDFC Life Insurance Company Ltd gave enough support to its premium valuation. The private sector life insurer reported improvement in profitability metrics but some pockets of its portfolio showed soft growth.

HDFC Life reported a 29% growth in its new business premium for the March quarter. The growth was broad based with both traditional savings and simple protection products doing well. On an annualised premium equivalent (APE) basis, the insurer reported a 14% growth from the year ago period but a sequential growth of 34%. The insurer has been able to take advantage of the strong March month to get market share too as insurance products tend to sell the most given the motivation to save tax for the financial year. Market linked products too did well although the insurer is aiming to keep the share of these products in the overall book at around 20%. That said, growth in simpler protection products was tepid.

The impact of the pandemic was reflected in FY21 numbers as a whole as total APE growth fell to 16.9% in FY21 from 18.4% in the previous year. On the whole, the life insurer has been able to keep up with healthy growth metrics as well as improve on profitability. In fact, its profitability metrics have strengthened further in the March quarter.

HDFC Life reported a robust 36% sequential growth in its value of new business (VNB) and its VNB margin improved further to 27%. The 52% surge year-on-year in VNB has an element of base effect. Investors should note that the insurer has been able to improve its metrics every quarter. In fact, the company managed to limit the impact of the pandemic and the initial lockdowns on its growth in FY21. Analysts at Jefferies India Pvt Ltd expect the company’s VNB to grow 17% on a compounded annual growth rate basis during FY21-24 period. “We slightly raise our VNB estimates to factor in recent results and the impact of the surge in Covid,” they wrote in a note.

Consistent improvement and a sanguine outlook from the management have contributed to HDFC Life’s premium valuation. That said, analysts believe that the share price reflects most of these positives. Those at Motilal Oswal Financial Services Ltd believe that the current second wave and its impact need to be monitored closely. At 4 times its estimated embedded value for FY22, the HDFC Life stock is dearer compared with that of SBI Life Insurance Company Ltd as well as ICICI Prudential Life Insurance Company Ltd.

News Source:- Livemint

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