Buy HDFC Life Insurance Co; target of Rs 870: Ventura Securities

Ventura Securities report on HDFC Life Insurance Co

Business model – HDFC Life Insurance Co. Ltd. (HDFCLI) specializes in the collection and management of life insurance premiums. Revenue is generated through new business premiums (NBP), renewal premiums, and investment income from its existing AUM. Post Covid-19, the Indian insurance sector has shown a remarkable growth, with gross premium growing at a CAGR of 9.7% from INR 5.7 trillion in FY20 to INR 8.3 trillion in FY24. We expect this growth to continue, with the sector poised to expand at a CAGR of 11.4% to INR 11.5 trillion by FY28. The key growth drivers include: Rising awareness regarding the need for financial protection among the masses, especially after the pandemic. A growing working-age population, currently standing at +900 mn individuals between the ages of 18-60 years. A market that is still relatively underpenetrated ($70 premium per capita), compared to $274 in China, $2,245 in Japan, $8,200 in the US and $900 of the global average, indicating substantial potential for growth. LIC, the market leader in India's life insurance space for decades, has faced increasing competition from private players. Aggressive marketing strategies, superior customer service, and innovative product offerings have chipped away at LIC's market share.

Outlook

On most metrics scores way above its peers and hence is our top pick in the life insurance sector. At the CMP of INR 687 the stock is trading at 1.9X FY27 P/EV. We initiate coverage at 2.4X FY27 P/EV (20% discount to its 3 years average) and recommend BUY with a price target of INR 870, which represents an upside of 26.7% over the next 24 months.