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Himali Patel - 08 September 2019

An impressive branding strategy, innovative product launches coupled with a well-diversified distribution mix along with successful expansion plans are essential tools that ensures a company is thriving. The same is applicable for insurance companies and HDFC Life Insurance seems to have tapped  the right opportunities. The company product portfolio of one the leading players within the domestic life insurance segment, offers insurance solutions like savings, investments, protection, pension, annuity and health among others. As of March 31 2019, the company had 38 individual and 11 group products in its portfolio, along with eight optional rider benefits, thereby insuring nearly 5.1 crore lives.

The company reported strong fundamentals as net profit increased by 12 per cent year-on-year (YoY) and stood at `425 crore for the first quarter (Q1) financial year (FY) 2020 on the back of new business premium. The total premium for the first quarter increased by 29 per cent YoY and settled at `6,536 crore. This was mainly led by 47 per cent YoY rise of new business premium for Q1FY2020, which amounted to Rs. 3,926 crore and new business margin saw a growth of 29.8 per cent YoY.

The individual annualised premium equivalent (APE) that came in at `1,378 crore in Q1, witnessed 64 per cent growth YoY, triggered by a new product launch in April 2019 named Sanchay Plus. “HDFC Life has been a leader in introducing innovative products making it a dominant player with strong return ratios of +25 per cent, superior margins of ~30 per cent and is retail driven, which makes it command premium multiple than peers,” said an analyst at Prabhudas Lilldadher. The 13th-month persistency ratio increased by 88.8 per cent in Q1 FY2020 from 85 per cent YoY. The persistency ratio indicates the stickiness of customers and thus the revenue flows. The company reported a strong business growth, which led to sharp improvement in the value of new business (VNB), which grew by 104 per cent YoY.

VNB margins indicate how profitably new business is acquired. Analysts tracking HDFC Life Insurance sees significant potential in the annuity or protection business and expects a further improvement in product mix, which should support profitability. “We revise our new business growth estimate, and expect HDFC Life to deliver ~30 per cent compounded annual growth rate (CAGR) in new business APE over FY19-21, while margins are likely to sustain at healthy levels of 28 per cent. We, thus, estimate 37 per cent CAGR in VNB over FY19-21, with operating RoEV/RoEV improving to 23 per cent or 20 per cent,” said an analyst at Motilal Oswal Financial Services. Since its listing on November 17, 2017 HDFC Life has yielded returns of 53 per cent till August 9, 2019. Analysts remain bullish on the company due to its strong parentage, well-diversified distribution mix and expanding presence.

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