Private life insurer HDFC Life is expected to report a 13.6 percent year-on-year (YoY) growth in annual premium equivalent (APE) for the October-December quarter (Q3FY25), driven by new premium policies, while the value of new business (VNB) is projected to increase by 6 percent YoY, according to analysts. The company will announce its December quarter results on January 15, 2025.
According to Moneycontrol's poll of 6 brokerages, HDFC Life's APE is expected to rise to Rs 3,626 crore in Q3FY25, up from Rs 3,191 crore in Q3FY24. APE measures the total value of new business by combining the annual premiums of regular policies and a tenth of single premiums.
Meanwhile, VNB is likely to grow to Rs 908 crore in Q3FY25 from Rs 856 crore in the same quarter last year. VNB reflects the profitability of new policies sold during a specific period.
Estimates of analysts polled by Moneycontrol are shown to be in a narrow range, meaning any positive or negative surprises may elicit a sharp reaction in the stock price. Among the brokerages polled, Motilal Oswal rolled out the most bullish projections while Emkay Global forecasted the slowest growth for HDFC Life.
What factors are driving the earnings?
New premium income: New business premium is expected to maintain its growth momentum, particularly in the annuity and par segments, according to analysts at Motilal Oswal. First-year premiums are expected to grow by 29 percent YoY in Q3FY25, renewal premiums are projected to rise by 18.6 percent YoY, and single premiums are likely to increase by 8 percent YoY.
Impact of new surrender regulations: The company’s margins are anticipated to contract by 180 basis points (bps) YoY to 25 percent in the December 2024 quarter as it adjusts to new surrender value regulations, according to Moneycontrol's poll. However, sequentially, margins are expected to expand by 70 bps from 24.3 percent due to strong VNB growth.
The new surrender value norms were effective from October 1, 2024 onwards and the new norms mandate life insurers to pay back higher amount to a policyholder who chooses to switch or surrender her policy.
What to look out for in the quarterly show?
Investors will focus on the product mix, the impact of the new surrender value regulations on margins, and any guidance on sales through bank channels. Commentary on growth and margin outlook will also be key factors to watch.
As HDFC Life’s shares are trading at near all-time low valuations, clarity on growth and margins after the resolution of recent regulatory concerns could trigger a re-rating, according to analysts at Emkay Global.
During the October-December period, HDFC Life's shares fell by 14 percent, compared to an 8 percent decline in the benchmark Nifty 50 index.
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