Buy HDFC Life Insurance; target of Rs 850: Motilal Oswal

Motilal Oswal's research report on HDFC Life Insurance

HDFC Life Insurance (HDFCLIFE) reported APE of INR51.9b (in line) in 4QFY25, up 10% YoY, driven by 9%/13% YoY growth in individual/group APE. For FY25, APE grew 16% YoY to INR154.8b. VNB grew 12% YoY to INR13.8b (in line) in 4QFY25, resulting in 13% YoY growth in FY25 VNB to INR39.6b. VNB margin for 4QFY25 came in 30bp above our estimate at 26.5% vs. 26.1% in 3QFY25/4QFY24, driven by higher rider attachment in ULIPs and sales of longer-term policies. For FY25, VNB margin was at 25.6% (vs. 26.3% in FY24). PAT increased 16% YoY to INR4.8b (15% miss) in 4QFY25. For FY25, PAT grew 15% YoY to INR18b, driven by back-book surplus. APE growth is expected to moderate in FY26 to mid-teens. VNB margins will remain range-bound as the company continues to invest the surplus in agent productivity enhancement and technology transformation. We have trimmed our VNB margin assumptions by 20bp/30bp in FY26/27, keeping our APE and EV estimates unchanged.

Outlook

We estimate HDFCLIFE to deliver a 19% VNB CAGR over FY25-FY27E and margins to gradually trend higher going ahead. Reiterate BUY with a TP of INR850 (based on 2.4x FY27E EV).