HDFC Life: Investing to capitalise on growth opportunity

5 Apr 2024 , 11:32 AM

Analysts if IIFL Capital Services recently interacted with Mr. Niraj Shah, CFO, HDFC Life (HDFCLI); to get an update on the business and the overall industry. He believes that the structural opportunity within the industry should allow the private sector to record 15%+ growth, and remains confident of the company’s ability to grow at a faster rate than the industry. HDFCLI aspires to maintain market share over the medium term, while grabbing opportunities to increase the share. The relationship with HDFC Bank remains strong and a gradual expansion of counter share is expected to continue. Gap in the Agency and Broking channels is something that HDFCLI plans on addressing; which should lead to a relatively better growth trajectory in FY25. Investments towards the expansion of distribution footprint will continue for another two years, which would be offset by elimination of the operating leverage gap due to a better growth profile. As a result, margins should stay largely range-bound in the medium term, and HDFCLI is willing to reinvest for better growth. Analysts of IIFL Capital Services continue to believe that HDFCLI is a healthy compounding story and should be accumulated post corrections.

Normalcy expected to return in high-ticket-size business:

Impact of the new taxation policy on >Rs500k premium business has resulted in a growth gap for HDFCLI during FY24. However, over the past few months, the company has seen the high-ticket-size business return, and it still forms 6% of the total APE. Management expects this cohort to normalise as customers grasp the reality and get to terms with the new tax policy.

Focus on improving margin profile of products:

FY24 witnessed higher ULIP share, which is lower on margins. Despite this, the company has been able to maintain margins by improving the segment’s margin profile. This has been achieved by increasing the sum assured, improving persistency, attachment of riders, etc. Going forward, HDFCLI will continue to put in efforts to improve the margin profile of all product segments.

Seeking growth, but on its own terms:

Some of the players in the industry have witnessed margin volatility, due to increase in payouts. HDFCLI remains committed towards maintaining expense ratios; wanting to source all the business out there, but at its own terms. In the past, HDFCLI has given up businesses which were not viable, and is not focused on gaining incremental share at a cost which cannot be managed.