HDFC Life is likely to report a modest single digit growth in net profit in the March quarter of financial year 2023-24 despite robust overall premium income, as competition and changing landscape push insurers to sell low- margin products.
HDFC Life’s January-March net profit may grow 6.1 percent on-year to Rs 382.1 crore when it announces its results on April 18, according to a Bloomberg consensus estimate of four brokerages. A moderation in the value of new business (VNB) will be a drag on profit growth, analysts said.
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Policy renewals to drive gross premium
The private sector insurer's gross premium income is pegged to grow 16 percent on-year to Rs 22,740 crore, led by 48.6 percent jump in renewal premium, paid by the policyholders periodically, typically every year, to keep the policy in force.
However, the total premium income could drop on account of hit from the first-year and single premiums, which are set to fall 8.2 percent and 17.3 percent from the previous year, analysts at Motilal Oswal said.
While the first-year premium denotes first year of coverage, single-premium refers to a one-time payment made by a policyholder to purchase an entire insurance policy.
Another key metric, the annual premium equivalent (APE), which measures premiums from different policies on an annual basis, is expected to fall 7 percent on-year to Rs 4,805 crore due to a large base of the previous year, analysts at Kotak Institutional Equities said.
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New business value to drop
Value of new business (VNB), which measures profitability of new insurance policies sold by the company, is expected to see a sharp fall due to low margin-linked products. VNB is likely to decline up to 15 percent on-year to Rs 1,286 crore in the March quarter from Rs 1,511 crore in the year-ago period.
The decline is expected to contract the VNB margin by 250 basis points (bps) to 26.8 percent from the previous year. However, sequentially, expansion of up to 50 bps is seen as margins of the Exide Life portfolio catch up, Kotak analysts said.
One basis point is one-hundredth of a percentage point.
Some of the key factors to watch in HDFC Life's Q4 results would be improvement in persistency ratio and commentary on growth outlook.
In the last few months, insurance companies have felt a mix of pressure on their profits due to tough competition and changes in the kinds of products they sell.
The HDFC Life stock has fallen more than 6 percent this year against a 2.4 percent rise in the Nifty.
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