HDFC Life eyes premium growth in FY24 but margin may be flat
There are expectations that the merger of HDFC Bank and HDFC would boost sales of HDFC Life Insurance Co. Ltd’s products through the bank’s channels. The merger was effective from 1 July. In its June quarter (Q1FY24) earnings call on Friday, HDFC Life’s management said business from the HDFC Bank channel has already started to improve. This contributed to 45-50% of the business based on the individual annualized premium equivalent (APE) among the bank channels in Q1.
Bancassurance (bank channels) formed 61% of individual APE in Q1 and aided overall growth, along with the gradual pick-up in retail protection and agency channel distribution. Accordingly, HDFC Life’s total APE growth, including Exide Life Insurance, stood at 13% year-on-year (y-o-y) at ₹2,330 crore. Excluding Exide, growth stood at 22%.
However, overall performance was something of a mixed bag with the value of new business (VNB) margin falling after a strong March quarter. Excluding the impact of the Exide Life merger, HDFC Life’s margin has fallen by 60 basis points (bps) year-on-year to 26.2%. However, including Exide, VNB margin is up 110 bps year-on-year, owing to better product mix.
While the company is likely to continue its APE growth in FY24, aided by higher sales of annuity and protection products across its distribution channels, the VNB margin could face challenges. According to the management, margin is expected to remain flat. In FY23, the VNB margin was 27.6%. The management expects VNB expansion in FY24 to be led by APE growth. According to Madhukar Ladha, director, Nuvama Institutional Equities, “The company will be spending more on technology which could be a drag on margin. Also, there could be some softness in the non-participating savings products on account of higher sales in March last year, and the company may see higher sales in low-margin products like ULIPs. So, while protection growth may aid margin, the other factors could offset the increase.” ULIPs refer to unit linked insurance products.
Meanwhile, so far this calendar year, the stock has rallied 14%. Hereon, further upsides would depend on HDFC Life reporting consistent APE growth while sustaining margin. The company has plans to expand its business to tier 2 and tier 3 cities, likely aided by HDFC Bank’s branch expansion which in turn could improve growth. “The synergy play with HDFC Bank will be watched closely over the next few quarters, as it will accelerate the broad-based growth of HDFC Life (in terms of product and distribution channel),” said analysts from Emkay Global Financial Services.
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Updated: 23 Jul 2023, 09:38 PM IST
