HDFC Life Insurance

25 Jan

The upward trajectory in VNB margin to continue – HDFC Life

Update on the Indian Equity Market:

On Tuesday, NIFTY50 snapped its five-day losing streak amid a volatile session. The index closed at 17,278 (+0.8%) as investors await more financial results in India and the outcome of the Fed Reserve meeting scheduled on Wednesday.

Among the sectoral indices, PSU BANK (+4.2%), AUTO (+2.3%), and MEDIA (+2.2%) led the gainers. IT (-0.3%) was the only sector which ended in the red. Among the stocks, MARUTI (+7.4%), AXISBANK (+6.5%), and SBIN (+3.9%) led the gainers while WIPRO (-1.6%), BAJAJFINSV (-1.4%), and TITAN (-1.2%) led the laggards.

Excerpts from an interview of Ms. Vibha Padalkar, MD& CEO, HDFC Life with Economic Times dated 24th January 2022:

  • HDFC Life reported 3QFY22 earnings, and all channels reported growth. In terms of the product mix, after 2 quarters’ lull, the individual protection grew by 20% YoY. Annuity continues to do well and reported 39% YoY growth.
  • On a standalone basis, the VNB margin (a profitability measure) has increased from 26.4% to 26.8% due to higher volumes and a balanced product mix. The CEO believes the upward margin trajectory will continue.
  • COVID-19 claims have reduced significantly in 3QFY22. From the peak of Rs 3,000mn claims in 2QFY22, the claims were reduced to Rs 170mn in 3QFY22. Due to the ongoing Omicron wave, the company has strengthened its mortality reserves and is carrying Rs 1,550mn of extra reserves.
  • The company has hiked its prices by 15-25%, which it believes was necessary. While the retention amount has increased, there was no impact on the solvency as reserves were carried at higher levels. Ms. Padalkar believes that price hikes for life insurance products and health insurance products are bound to happen due to inflation.
  • The solvency ratio was 190% before the cash payout for the Exide Life acquisition. The solvency was over 200% in 3QFY21, which was more of an aberration. The company maintains solvency in the 190-195% zone. She expects profits generated in 4QFY22 will add to the solvency of the company. Second, they have raised Rs 6,000mn as subordinated debt. If the need be, they can increase the subordinated debt levels.
  • The first step of the Exide Life merger with HDFC Life is complete. The next step is about 9months to a year away when the full integration happens and HDFC Life will be able to enjoy synergies. It will add 30-35% to the company’s agency channel and deepen its presence in South India and tier two and three towns.
  • The CEO believes the third wave has peaked in several parts of India indicating demand and all the macro indicators are robust. People’s attitude towards insurance has changed.
  • A lot of people reaching retirement age are thinking about getting annuity plans as they realise they will outlive their retirement age by ~20 years or more. The company’s retirement focus campaigns are also enlightening people.
  • The company is very close to its ideal product construct which is about a third unit-linked, about third participating products, and the balance non-participating savings products.

Asset Multiplier comments:

  • The insurance sector is a multi-decadal opportunity in India due to the under penetration and protection gap.
  • We believe the Company has maintained significant provisions to provide for claims expected due to the third wave. This coupled with a dynamic and balanced business mix, protection business strategy, and the expected pickup in agency business augurs well for the growth of the company.

Consensus Estimate: (Source: Market screener website)

  • The closing price of HDFC Life was ₹ 630/- as of 25-January-2022.  It traded at 94x/ 72x/ 62x the consensus EPS estimate of ₹ 6.7/ 8.7/ 10.2/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 787/- which implies a PE multiple of 77x on FY24E EPS of 10.2/-.
  • In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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25 Nov

Low penetration translates to enormous growth opportunities – HDFC LIFE

Update on the Indian Equity market:
On Tuesday, the Nifty50 index closed at a record high of 13,055 (+1.0%) as hopes for faster economic recovery were renewed due to Covid-19 vaccine progress. BANK (+2.5%), PRIVATE BANK (+2.3%), and REALTY (+1.8%) led the sectoral gainers and there were no sectoral losers. Among the stocks, ADANIPORTS (+4.5%), AXISBANK (+3.9%), and HDFCBANK (+3.5%) led the gainers. TITAN (-1.5%), HDFC (-1.4%), and BPCL (-1.2%) led the laggards.

Excerpts of an interview of Ms. Vibha Padalkar, MD & CEO, HDFC Life aired on CNBC TV18 on 20th November 2020:

• The green shoots are being seen and each month has been better than the previous month. On YTD basis, the industry has declined 8% YoY while HDFC Life has grown 8%. The month of October 2020 has been one of the best with 50% growth in new business premium.
• The growth is not linked to the festive season because insurance is a long-term protection and savings outlay. The growth is due to inherent need felt by the customers. Due to the high conviction about the need of insurance, the growth has been across distribution touch points-bancassurance, and the new age ecosystem channels.
• HDFC recently sold some stake in HDFC Life due to regulatory requirements. RBI had asked HDFC to get the shareholding in both of its insurance subsidiaries to 50% levels which led to stake sale to comply before December 2020. Despite the stake sale, HDFC will continue to remain the promoter in the foreseeable future.
• Penetration levels remaining so low, the growth opportunities for HDFC Life are enormous.
• Sanchay policies- the company keeps repricing it and over the past 18-24 months since the product was launched, pricing for new policies has moved in tune with the interest rates.
• The company’s focus has been on prompt protection-mortality, morbidity, longevity and interest rate risk.
• Unit linked products are continuing to see an uptick as there is a recovery in the equity market.
• Covid-19 products are awaiting approval and it is in combination with having an indemnity on covid and is expected to do well. There is an uptick on the Covid-19 claims, which is within the company’s actuarial assumptions.
• The protection products witnessed 38% growth and is one of their best performing products, followed by Sanchay product. Sanchay par advantage has catapulted to 30-35 % of their business and is under the participating umbrella of products.
• They expect a high single digit growth for Annual Premium Equivalent (APE) for FY21E. On Value of New Business (VNB), this year is going to be flat, and margins are expected to be at the same level as FY20.

Consensus Estimate: (Source: market screener website)
• The closing price of HDFC Life was ₹ 666/- as of 24-November-2020. It traded at 97x/ 83x/ 66x the consensus earnings estimate of ₹ 6.9/ 8.0/ 10.1 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 642 implies a PE multiple of 64x on FY23E EPS of ₹ 10.1/-.
• In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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24 Sep

Not faced a lot of Covid-19 claims- HDFC Life

Update on the Indian Equity Market:
On Wednesday Nifty closed 0.2% lower at 11,132. Among the sectoral indices Media (-2.4%), Pharma (-1.6%), and PSU Bank (-1.5%) closed lower. Realty (+0.79%), PVT Bank (+0.2%), and Bank (+0.2%) closed higher. Infratel (-8.3%), Bharti Airtel (-8.2%), and Tata Steel (-3.5%) closed on a negative note. Axis Bank (+2.4%), Coal India (+2.4%), and GAIL (+1.7%) were among the top gainers.

Excerpts from an interview of Mrs. Vibha Padalkar, MD and CEO, HDFC Life with ET dated 21th September 2020:

● Speaking about the coronavirus pandemic, she said the life insurance in India has grown in a particular way led by savings-based products.
● The pandemic is a penny drop movement for life insurance, especially for term products.
● The Chinese insurers have over 50% share of term protection while for India on a weighted premium basis it is in single digits. This could change with the pandemic and definitely a pull can be seen.
● The market segment is largely the middle class. The target is to focus on all. In a job loss and salary cut scenario, the company is suggesting that people get some cover.
● The average ticket size has fallen to 75% than pre-pandemic, there is a definite pull towards getting insured.
● People are spending less on discretionary and as more people gain awareness on having life insurance, the penetration will also improve.
● The endowment plan gives topline, and other products contribute to the bottom line. Protection, if done sensibly, is a highly profitable business.
● Three protection policies need to be sold to match the premium that a single endowment product brings. Therefore, the company has to balance the mix.
● Products like riders and annuity are also good to have for building strong bottom lines.
● HDFC life has not faced a lot of COVID-19 claims. The company has settled 235 claims since March with the sum at risk at about 22 crore and very much in line actuarial funds.
● Some studies have shown that the overall deaths, in general, have gone down. This could be because of reduced accidents which to an extent has had a neutralizing effect on the impact of coronavirus.
● Last year, the company launched a guarantee backed product that caught customer’s attention. Over 60% of the business in that quarter was through that product. However, now the company has brought it down to 25%. There is constant monitoring of the segment and the reprising of new policies according to interest rates. Then there is asset backing as well where the company writes against long-dated government paper which provides the hedge.
● On LIC listing, she said, the biggest impact is that it would bring transparency. When listed companies make disclosures it’s not just on accounting profits but also on long term profit emergence and value creation.
● The listing of LIC is of utmost importance as it’s the largest financial institution in the country.
● On the demand for Investment-linked products, she said there is a balanced product mix and the company likes Unit Linked Investment Products (ULIPs) to be at 25% of the mix. The company is able to sell enough to maintain it but for companies having a 60-70% mix could struggle.
● Speaking on the effects of automation on agents, she says, it goes hand in hand. There is an India, and, there is a Bharat. There are young people adept at doing their own research to purchase online while there are older people who like assistance and hand-holding.
Banca partners are targeting branch walk-ins, the financial advisors are getting savvy with digital to push digital through existing channels.

Consensus Estimate: (Source: market screener website)
● The closing price of HDFC Life was ₹ 580/- as of 23-September-2020. It traded at 81x/ 73x/ 71x the consensus Earnings per share estimate of ₹ 7.10/7.94/8.14 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for HDFC Life is ₹ 615/- which implies a PE multiple of 75x on FY23E EPS of ₹8.14/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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15 Jun

Insurance sector at an inflection point: HDFC Life

Update on the Indian Equity Market:

The equity index, Nifty recovered from day’s low to end higher at 9,973 (+0.7%). Among the sectoral indices, Auto (+2.9%), Realty (+1.2%), and PSU Bank (+0.8%) led the gainers while IT (-1.5%), and Media (-0.9%) were the only losers. M&M (+7.6%), INFRATEL (+6.5%), and SHREECEM (+5.8%) were the highest gainers while ZEEL (-4.5%), ONGC (-3.4%), and TECHM (-3.1%) led the laggards.

Excerpts of an interview with Ms. Vibha Padalkar, Managing Director (MD) and Chief Executive Officer (CEO), HDFC Life published in Economic Times on 9th June 2020:

  • People are adjusting to the new normal and becoming more resilient and the need for life insurance is becoming more and more apparent, from just one metric.
  • HDFC Life has written more than one lakh policies in the first two months of FY21. Having settled over 500 death claim settlements, over 10,000 maturity claims, and close to a lakh annuity payout, the roadmap to customer servicing in the new normal is being laid.
  • The life insurance sector piggybacks 2-2.5x GDP. If some recovery is seen toward the end of H1FY21, then the insurance sector could show low single-digit growth. In her opinion, the recovery could more likely be W shaped.
  • There is certainly risk-averse sentiment in the market.
  • The online distribution channel has shown growth in YTD May against overall decline for the company and the sector. The Bancassurance channel in May has done significantly better versus April. As banks open their branches, and they adjust to the new norm of digital-based selling, this channel will also see growth.
  • As protection continues to do well, double-digit growth is being observed in that part of the business. The turbulence in the markets has led to reduced demand for unit-linked products for now.
  • Risk-based products are doing very well and the other end of the spectrum like the non-participating products are not doing so well.
  • It is extremely difficult to predict the growth estimates for FY21 and they are taking it on a rolling quarter basis. They have already witnessed a 100 bps increase in the market share and are number one in terms of new business growth in the private sector. They will continue to retain and grow the market share, but it will be a function of overall market pickup as well.
  • The medium-term outlook for the sector is positive since insurance will become more relevant. This is the inflection point for the insurance sector and will start seeing an uptick more than pre-Covid.

Consensus Estimate: (Source: market screener website)

  • The closing price of HDFC Life was ₹ 503/- as of 12-June-2020. It traded at 76x/ 57x the consensus EPS estimate of ₹ 6.6/ 8.8 for FY21E/FY22E respectively.
  • The consensus average target price of ₹ 544/- implies a PE multiple of 62x of FY22E EPS of ₹ 8.8/-.
  • In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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07 Nov

“HDFC Life always at the forefront of product innovation,” says HDFC Life Insurance MD & CEO.

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.4% higher than the previous close. Cipla (+3.0%), ICICI Bank (+2.5%) and Infosys (+2.4%) were the top NIFTY50 gainers. Titan (-10.1%), Bharti Airtel (-3.4%) and ONGC (-1.3%) were the top NIFTY50 losers. NIFTY Realty (+2.3%), Nifty Pvt Bank (+1.4%) and Nifty Bank (+1.2%) were the top sectors that closed positive. NIFTY PSU Bank (-0.9%), NIFTY Media (-0.5%) and NIFTY Auto (-0.2%) were the worst-performing sectors.

“HDFC Life always at the forefront of product innovation,” says HDFC Life Insurance MD & CEO.

Excerpts from an interview with Mrs. Vibha Padalkar, Managing Director & CEO, HDFC Life Insurance broadcasted on CNBC- TV18 on 6th November 2019:

  • HDFC Life insurance continues to gain market share & remain number one in the private sector space. The Company has gained market share by 220 bps in 1HFY20.
  • The Company has reported a growth of 38% on Effective Premium Income in the first half of FY20. Thus, there was a 65% YoY growth in the 1QFY20 on the back of their product called ‘Sanchay Plus’. In 2Q the Company reported a growth of 19% which according to her is not moderate by any means.
  • HDFC Life has a balance in its product mix as well as in the distribution. In a particular quarter, one might have something that is topical like a product launch or some focus because of the overall sentiment in the markets. However, on a full-year basis, the Company will come back to the balance and that is exactly what HDFC life has started demonstrating.
  • The non-par savings product contributed about 68% in 1QFY20 which came down sharply in 2Q at an exit rate of 41%. The Company expects to end the year between 30% to 35% contribution from non-par saving products.
  • HDFC Life is confident of delivering growth of 25-27% in the value of new business for the next two years on the back of:

a) Tying up with new partners and expanding a new ecosystem partner,

b) Product innovation. HDFC Life has always been at the forefront of product innovation, according to the MD.

c) Operational savings by reducing the fixed costs as a percentage of new business.

  • Regarding exposures of insurance companies to the non-banking financial companies (NBFCs) sector, the Company had one which is the IL&FS which has been written down fully. There is no other NBFC exposure.
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