HDFC Life falls 4% on margin concerns after Q4 results, brokerages lower target price

HDFC Life shares have fallen 6 percent in past 6 months

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HDFC Life Insurance shares fell 4 percent on April 19 as the market reacted negatively to the drop in the its Value of New Business (VNB) margin, forcing brokerages to cut the target price even as they largely stuck to their "buy" calls on the stock.

At 10.26 am, the stock was trading over a percent lower at Rs 600.

The private sector insurer's VNB fell 320 basis points (bps) to 26.1 percent in the March quarter. VNB is the present value of the future profits expected to be earned from new business written during the year.

One basis point is one-hundredth of percentage point.

HSBC, Jefferies and Nomura maintained a "buy" rating on the stock, while Morgan Stanley retained "overweight" call.

Brokerages cited various reasons for the negative impact on HDFC Life's VNB. HSBC, for instance, lowered its target price from Rs 800 to Rs 750 a share, attributing the decline in VNB margin to changes in product mix and increased competitive pressure. Jefferies said VNB fell short of its estimates due to reduced margins.

Also Read | HDFC Life sees pressure on VNB margins in Q4

HSBC cut HDFC Life's margin estimates for FY25, FY26 and FY27 by 110, 70, and 70 bps, respectively.

Jefferies also slashed the target price from Rs 800 a share to Rs 750. However, the brokerage sees growth improving for HDFC Life starting FY25, as the base normalises and an uptick in agency and newer markets materialises.

HDFC Life management aims to prioritise Annualized Premium Equivalent (APE) growth over margins in FY25 while targeting mid-teens VNB growth, as per HSBC.

Nomura cut the target price from Rs 740 a share to Rs 680 per share. Morgan Stanley reduced the price target from Rs 780 per share to Rs 745 per share, anticipating muted stock performance for HDFC Life in the short term.

On April 18, HDFC Life reported a net profit of Rs 411 crore for the January-March quarter, marking a 14.8 percent increase from the previous year, surpassing a Moneycontrol poll estimate of Rs 382.1 crore. Net premium income also rose by 5.4 percent year-on-year to Rs 20,488 crore in the Q4 FY24.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.