HDFC Life slips in a firm market amid profit booking post Q4 results

Analysts at Kotak Institutional Equities believe HDFC Life's rich valuation caps its upside

HDFC Life shares slipped 2 per cent to Rs 692, in an otherwise strong market, on the BSE on Tuesday as investors booked profit on the counter post healthy March quarter (Q4FY21) results. At 9:55 AM, the stock was trading at Rs 694 apiece, down 1.6 per cent on the BSE, as against a 0.5 per cent rise in the S&P BSE Sensex.

Private sector life insurer HDFC Life, on Monday, reported a 2 per cent jump in net profit (on a standalone level) to Rs 317.94 crore in Q4FY21, from Rs 311.71 crore posted in the same period last year. Furthermore, the insurer saw a 23 per cent rise in net premium in Q4FY21 to Rs 12,868.01 crore from Rs 10,464.46 crore a year ago. Its investment income of Rs 6,051.42 crore in the fourth quarter was down almost 50 per cent sequentially.  

In FY21, the total annualised premium equivalent (APE) of the insurer rose 13 per cent to Rs 8,372 crore and the individual APE increased 16 per cent to Rs 7,121 crore. Besides, the total premium collected by the insurer, which includes new business premium and renewal premium, increased 18 per cent to Rs 38,583 crore. While the value of new business (VNB) went up by 14 per cent to Rs 2,185 crore, the new business margin (NBM), a measure of profitability of life insurance companies, reported by the company stood at 26.1 per cent compared to 25.9 per cent in FY20.

"HDFC Life saw a healthy 36 per cent rise in APE for 4Q led by improved trends in non-par product (79 per cent YoY), steady growth in annuities, Par and improvement in ULIPs, all supported by low base of last year. Credit protect has also seen a modest 2 per cent QoQ growth, reflecting gradually improved lending and attachment by bancassurance partners. It is interesting to see that most channels have done well in mobilising premiums," noted analysts at Jefferies in a result review report. The brokerage maintained its 'Buy' rating with a price target of Rs 880.

That apart, the solvency ratio of the insurer has improved year-on-year (YoY) to 201 per cent, against the regulatory requirement of 150 per cent. “Further, based on the Company’s current assessment of the business operations over next one year, it expects the solvency ratio to continue to remain above the minimum limit prescribed by the Insurance regulator”, the company said in a statement.

It has a persistency ratio of 91.4 per cent in Q4FY21 compared to 92.9 per cent in Q3FY21 and 88.4 per cent in Q4FY20. 

Domestic brokerage Kotak Institutional Equities noted that HDFC Life remains the best player with superior APE, VNB and EVOP growth, high margins, stable persistency driving stable performance even in a challenging year like FY2021. "The company has consistently maintained product leadership; support of the bank helped the company deliver superior business for most part of the year, recent initiatives to push agency and direct channel will aid over the next few quarters," it added.

Yet, the brokerage believes HDFC Life's rich valuation caps its upside. It maintained 'Add' rating with a target price of Rs 750.