Tag - insurance sector

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28 Apr

Preference for Margins over Volume Growth: HDFC Life

Update on Indian Equity Market:

Markets were on the rise today, with Nifty increasing 212 points to 14,865. Bajaj Finance (8.0%), Indusind Bank (4.9%), and Eicher Motors (4.8%) were the top gainers on the index while Britannia (-2.0%), Hindalco (-1.0%), and Nestle (-1.0%) were the top losers for the day. Among the sectoral indices, Bank (3.0%), Private Bank (3.0%), and Financial Services (2.9%), led the gainers while Realty (-0.6%), Pharma (-0.3%), and Metal (-0.3%) ended in the red.

 

Excerpts of an interview with Ms. Vibha Padalkar, CEO of HDFC Life with Bloomberg Quint dated 28th April 2021:

 

  • HDFC Life expects to record profit margins upwards of 70% irrespective of the covid-19 impact. 
  • Company prefers to protect high profit margins and to grow moderately than chase topline growth, especially in the protection segment due to uncertainty and higher risk due to covid-19.
  • Company aims to expand into the annuity segment which is a highly lucrative and retiral segment which is showing good potential going forward.
  • The risk associated with price hike as a result of covid-19 cannot be ruled out entirely. The company ensures that the price hike will be passed over to customers in a phased manner.
  • In order to reduce risk, the company wants to diversify its product portfolio to improve contributions from annuity and protection segments

 

Asset Multiplier Comments:

  •  The Company has identified key areas, in order to sustain growth by focusing on margins cover and sustainable growth, which provides a long term positive outlook for the company.
  • These efforts will help the company grow beyond FY22 and with the expansion of the Insurance industry is poised for stellar growth.

 

Consensus Estimates (Source: market screener website):

  • The closing price of HDFC Life was ₹ 673/- as of 28-April-2021.  It traded at75x/ 67x the consensus EPS estimate of ₹ 9/ ₹ 10 for FY22E/23E respectively.
  • The consensus price target is ₹ 758/- which trades at 76x the EPS estimate for FY23E of ₹ 10/-
  • 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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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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