Buy HDFC Life Insurance; target of Rs 725: Emkay Global Financial

Emkay Global Financial's research report on HDFC Life Insurance

Following a bumper FY23 in terms of APE growth and VNB margin on account of taxation changes, HDFCLIFE reported muted performance in FY24 with a largely flat APE at Rs 132.9bn and VNB declining 4.7% YoY to Rs35.0bn due to 130bps YoY VNB margin contraction to 26.3%. Beyond the sobering headline numbers, a few resets in FY24 that bode well for FY25 are: i) Adjusted for Rs10bn of the extra business in Mar-23, FY24 Retail APE grew 11% YoY. ii) Counter share in HDFC Bank improved to ~63% (+8-10ppts YoY). iii) Agency count grew by 80K in FY24 and number of Tier2/3 locations saw strong growth. Against this backdrop, Management is focused on and confident of delivering ~15% APE growth while keeping the margin stable.

Outlook

We adjust our FY25-26 estimates to reflect the Q4 developments and the new growth & margin realities; this leads to a ~4% cut in VNB. With most headwinds now behind and given better clarity of growth, we upgrade the stock to BUY from Add, with Mar25E revised TP of Rs725 (from Rs700 earlier), implying FY26E P/EV of 2.4x.