Q4FY23 Review: HDFC Life: Strong Non-par mix drives margin expansion

27 Apr 2023 , 01:22 PM

HDFC Life (HDFCLI) reported Q4FY23 results with 75% YoY growth in retail APE. All reported numbers are non-comparable YoY due to merger with Exide Life. Non-Par segment remained the key driver, forming 50% of total APE in Q4, while ULIP moderated to only 14%of APE. Management stated that retail protection trends remained encouraging, with YoY growth being over 40% in Q4, while Group Protection remained strong. VNB margins also expanded sharply to 29.3% in Q4 on improved product mix. During FY23, margins were largely flat as better product mix was offset by fixed cost absorption related to Exide merger and cost related to launch of a technology transformation project. As a result, VNB growth stood at 37% YoY for FY23. Exide integration is progressing well with margin neutrality achieved already. Management expects its share in HDFC Bank channel to inch up in the medium term given the recent developments at the group level.

Non-Par, Protection drive growth: 

Growth in Q4 was led by Non-Par even as ULIP moderated. Retail Protection trends remained encouraging, with YoY growth being over 40% in Q4, while Group Protection remained strong. Among channels, agency continued to grow faster clocking more than 2x company level growth in retail APE in FY23, increasing its share from 14% to ~20% in the merged entity.

Margins maintained: 

VNB grew 37% YoY for FY23, with FY23 VNB margins being in line YoY at 27.6%. Change in business mix in products and distribution was offset by higher fixed cost absorption from Exide merger and costs related to launch of a technology transformation project. While the Exide merger has already achieved margin neutrality in FY23, management expects APE growth to drive margin expansion in the long-term. 

Valuations at a premium to peers: 

Analysts of IIFL Capital Services forecast 17%/18% VNB/EV Cagr over FY23-25. Stock trades at 2.3x/1.9x FY24/FY25 P/EV, at 13% premium to SBILI, but a history of higher growth and RoEV may help sustain some premium, in their view. Maintain ADD. Key risk: Regulations.