HDFC Life Q1 preview: New premiums to drive double-digit profit, but margin pressure to stay

The stock of HDFC Life has declined over 6 percent during the April-June period this year, as compared to 7 percent rise in the benchmark Nifty 50 index

Private life insurer HDFC Life is likely to clock double digit growth in net profit in the April-June quarter (Q1FY25), primarily driven by strong new premium collections from market-linked products. The company is slated to release its Q1 results on July 15, 2024.

HDFC Life's net profit may grow 13 percent year-on-year (YoY) to Rs 478 crore in Q1FY25 from Rs 420 crore in Q1FY24 when it announces its results on July 15, 2024, according to a Bloomberg estimate of three brokerages. A healthy growth in the value of new business (VNB) will also fuel the insurer's profit growth, said analysts.

The insurer's gross premium income is pegged to grow by 22.2 percent YoY to Rs 18,650 crore, led by 26.5 percent jump in first-premium income, which is the first payment that policyholders make on a insurance policy. Renewal premium that policyholders pay to keep policy in force will also see a jump of 24 percent YoY in Q1FY24, said analysts at Motilal Oswal.

ALSO READ: Top life insurers likely hiked term life premium, rest to follow suit: CNBC-TV18

Another key metric, the annual premium equivalent (APE), which measures premiums from different policies on an annual basis, is expected to grow by 24 percent YoY to Rs 2,900 crore amid higher growth in unit-linked insurance plans (ULIPs), said analysts at Kotak Institutional Equities. ULIPs are a type of insurance plan, wherein a portion of the premium is invested in a variety of market-linked funds, while the remaining is used to provide life insurance coverage.

This strong APE growth is likely to drive HDFC Life's value of new business (VNB) growth, which measures profitability of new insurance policies sold by the company. It is estimated to see a rise of 18 percent YoY to Rs 700 crore in the quarter ended June.

ALSO READ: Buy HDFC Life Insurance Company; target of Rs 710: Geojit Financial Services

However, VNB margins may witness a sharp fall of 130 basis points (bps) to 25 percent in Q1FY25 from 26.2 percent a year back owing to higher payouts and investment in low tickets, added Kotak analysts.

Some of the key factors to watch in HDFC Life's Q1 results would be improvement in persistency ratios and commentary on growth outlook.

The stock of HDFC Life declined over 6 percent during the April-June period this year, as compared to 7 percent rise in the benchmark Nifty 50 index.