HDFC Life’s FY24 may be dull but there are bright spots ahead
Last week HDFC Life Insurance Co. Ltd received approvals from the Competition Commission of India and Insurance Regulatory and Development Authority of India to raise shareholding in it by the merged entity (HDFC and HDFC Bank) to more than 50%.
The increase in stake would be done over a period and bodes well for HDFC Life’s business prospects. This could improve sales through HDFC Bank channels. In a meeting with analysts from Kotak Institutional Equities, HDFC Life’s management highlighted that they will benefit from new branch additions (1,479 branches added by HDFC Bank in FY23) and will increase its workforce in the bank over time.
“About 40-45% of total insurance employees seated in HDFC Bank’s branches are from HDFC Life,” said Kotak’s analysts in a report on 22 June.
In FY23, a good 56% of individual annualized premium equivalent (APE) for the company was from the bank channel. Going ahead, it plans to increase the number of policies for improving APE growth. Also, a portfolio of diversified products with a better share in the non-participating policies augurs well. With the tax changes effective April (maturity proceeds from policies with premium of over ₹5 lakh to be taxed), the company has started focusing on lower ticket sizes.
To be sure, FY24 performance is likely to be muted. Investments in technology of about ₹100 crore in FY24 is expected to keep the value of the new business (VNB) margin flat. This is despite growth in its other distribution channels.
So far, HDFC Life has done well in FY24.
The company reported 6-14% year-on-year overall APE growth in the past two months (April and May), higher than private sector growth of 1-10%, pointed out Kotak. The benefits from Exide Life’s merger is one of the factors that aided growth.
The recent notice with a demand for ₹942 crore towards goods and service tax dues from July 2017 to FY22 could dampen investors’ sentiment, though analysts do not expect a large impact on the company.
Meanwhile, the stock has risen about 11% so far in 2023. Madhukar Ladha, director, Nuvama Institutional Equities, said, “The company’s growth may be a little challenged in FY24 because of the impact on high-ticket policy sales. While they have done well so far, progress remains to be seen. With no significant improvement in margin expected, the potential for stock to rerate is limited unless growth comes as a surprise.”
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Updated: 25 Jun 2023, 10:57 PM IST
