HDFC Life – Robust FY20 strategy to drive growth

Dated: 29th August 2019
Market update:

With no big catalyst today, the markets continued to fall for third straight day as Nifty dropped -0.9% to 10,948. Today was also the monthly F&O (Futures and Options) expiry day which led to volatile trading session. It is important to note that the FIIs have continued to sell their positions in spite of rollback of additional surcharge. This highlights that the focus is on the economy and corporate earnings growth.

Among the sectoral indices, Pharma was an outlier with the index rising 2.3%. 7 out of 11 major indices were in the red zone with Financial services (-1.9%) and Banks (-1.8%) led the drop. Within the stocks, Sun pharma (+5.2%) bharti infratel (+3.5%), JSW steel (+3.0%) were the best performers while SBI (-3.7%), Yes bank (-3.5%) and HDFC (-2.68%) were the worst performers.

HDFC Life – Robust FY20 strategy to drive growth

Key highlights from interview with Mrs. VIbha Padalkar (CEO- HDFC Life) that appeared in Economic Times – 29^th August 2019

• The market realises a couple of things. One is that insurance companies have a much longer horizon in terms of everything and fundamentals of Indian macros are pretty strong and worldwide it is seen as very strong emerging market.
• The understanding of what insurance products can offer which are different from investment related insurance products as it was known earlier, is becoming more and more apparent.
• Protection is something that insurance companies are beginning to focus on and HFDC Life has been the market leaders in that space.
• They expect the industry to grow from strength to strength despite all the macro level volatility that they are seeing.
• HDFC Life has always believed in the principles of strong growth and profitability. Market share is an outcome. It will continue to beat overall industry growth but not necessarily be the first in terms of profitability as well as market share.
• 1Q margins were very robust, just shy of 30% and this was on the back of a lot of focus on  non-par product which is Sanchay Plus. However, on a full year basis, this will stabilize somewhat. It will certainly be higher than where it ended last year but nevertheless rationalise.
• She believes in a balanced product mix. HDFC life might be exiting the year with a non-par portfolio in the range of about 35 odd per cent.
• HDFC Life continues to be interested in evaluating inorganic growth opportunities that come its way. They have a currency and a strong balance sheet but they want to do this in a sensible manner. As regards Max Life, nothing is on the table right now but they continue to remain interested.

Strategy for FY20:

1. In Q1, agency channel grew 121%, bancassurance grew upwards of 45%, broker channel grew three times, online channel almost doubled. In FY20, they want to continue to forge ahead through all its channels. They want to be firing on all the channels.
2. They want to continue to be known as product innovator and they have a few in the pipeline and they are hoping that by the end of 3Q, they can take some more blockbuster products to market which will be first of its kind.
3. They are known as a technology-focussed life insurer. On that part as well, they have mentioned in the past that they have tied up with Ivy Camp and they are looking under their Futurance umbrella at a whole host of start-ups that can work with them.
4. Be it in the pension space or the life insurance space, they are looking at it as an end-to-end platform.
5. Forging ahead in the ecosystem such as the recent tie up with Airtel. They are having more conversations that are happening with the new ecosystem partners who at present have a very huge customer base who have not really thought that they could sell financial services products through their own channels.

Consensus estimates (Marketscreener website):

• The stock price was Rs 541/- as of close price of 29^th August 2019 and trades at P/E multiple of 72x / 62x / 56x the consensus EPS of Rs 7.5/ 8.8 /9.6 for FY20E /21E / 22E respectively. 
• Consensus target price is Rs 529/- implying P/E of 55x for FY22E EPS of Rs 9.6.