We reiterate our ‘Buy’ rating on HDFC Life led by improved outlook of non-par assured portfolio, continued robust demand for protection and organic development levers.
Increase in assured prices and probably enhance in interest prices ahead will make non-par portfolio more appealing. HDFC Life has improved prices in its assured savings providing. When we look at derivative (FRA) MTMs, some peers have reported losses in FY21 indicating interest prices have been greater than the exercising prices of these derivatives. This, along with attainable enhance in interest price outlook, will allow insurers to offer you greater prices for their non-par assured portfolio. HDFC Life is nicely placed to advantage from this.
Sum assured development has also been healthful for HDFC Life: The person sum assured marketplace share for HDFC Life has enhanced from 11.7%/11.2% in FY20/21 to 14.3% FY22TD (information up to May’21). The group sum assured marketplace share of HDFC Life stands at 9.3% as of May’21 compared to 24/12% in FY20/21 indicating a attainable scope of improvement.
Covid claims stay a quick-term concern: Depending upon the provisions currently taken in FY21, insurers may possibly have to take more provisioning in FY22. However, this remains a one-off occasion (HDFC Life had no damaging operational variance among FY16-20). Overall demand for protection remains quite robust. Higher pricing and enhanced health-related underwriting are readily available profit levers.
Reiterate Buy: We issue VNB margins of 27/28.5% with APE development of 18/18% in FY22/FY23E. We count on HDLI to accumulate Rs 58.7bn of new small business and Rs45.4bn of unwind (@8%) more than FY22E / FY23E to attain an embedded worth (EV) of Rs 358.3bn by FY23E. We worth HDLI based on 40x new small business worth of Rs 33bn in FY23E to arrive at a target price tag of Rs 823.