HDFC Life: Levers exist to revive growth trajectory

15 Feb 2024 , 01:25 PM

Analysts of IIFL Securities hosted the management of HDFC Life (HDFCLI) at IIFL’s Investor Conference in Mumbai. Management continues to see long term opportunity in the protection, long term savings and pension segments. Protection continues to remain largely underpenetrated and the funnel can only expand from here. The broad objective of HDFCLI is to deliver better than industry growth while maintaining profitability. The Company focuses on maintaining a diversified approach, both with respect to product categories and distribution channels. From a margin perspective, VNB growth is crucial, which can be a combination of both APE growth and margin expansion. HDFCLI is tilted more towards APE growth while grabbing available opportunities for margin expansion. On the exposure draft on new surrender charges regulations, management believes that if these regulations come through in the current form, it can disrupt the long term product proposition of the traditional non-linked insurance products. Analysts of IIFL Securities forecast 18%/16% VNB/EV Cagr over FY24-26. HDFC Life remains a strong compounding story, in their view. Maintain ADD.

Positive on growth trajectory returning: 

9MFY24 saw a fairly muted performance from an APE growth perspective, largely attributable to the taxation policy change on policies with over Rs500k p.a. premium. The segment used to constitute around ~12% of the business mix which has come down to 6%. Management believes that continued traction in the less than Rs500k p.a. premium segment, resetting of base for the Rs500k+ p.a. premium segment and enhancement of distribution capabilities should enable the return of growth trajectory. 

Merger benefits would flow in an organic and calibrated way: 

With greater alignment of objectives of HDFCLI and HDFC Bank post-merger, the Company has witnessed an increase in the share of the banks business. Conversations are on for a defined minimum threshold share of HDFC Life within each branch of HDFC Bank. Focus is also on cross sell opportunities. 

Other takeaways: 

On the proposed surrender charges regulations, management believes that if they come through in the current form, it can disrupt the long term product proposition of these products. However impact on growth would be negligible and tweaks in the distribution architecture and business model can help solve the margins problem.