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HDFC LIFE INSURANCE C L - Markets Mojo · HDFC Life Insurance Company Ltd. (HDFC Life), formerly...

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HDFC LIFE INSURANCE COMPANY LTD. July 12, 2019 1 HDFC Life Insurance Company Ltd. Industry Insurance No. of Shares (Cr) 201.75 Face value (Rs) 10.00 Mkt. Cap (Rs. Cr) 94,347.88 Price (11/07/2019) 467.65 Book Value (Rs) 28.00 P/BV 16.70 BSE Code 540777 NSE Code HDFCLIFE Bloomberg HDFCLIFE IN Reuters HDFS.BO Avg. Monthly Vol. 1,717,716 52 W H/L (Rs) 510.75/345.00 Shareholding Pattern % Indian Promoters 51.48 Foreign Promoters 24.66 DIIs 3.40 FPIs 10.52 Body Corporate 2.08 Non-Institutions 7.84 Total 100 (As on March 31, 2019) Recommendation BUY Particulars (Rs. Crs) Q4FY19^ Q4FY18^ Var% H2FY19^ H2FY18^ Var% FY19* FY18* Premium Income 10247.50 8900.02 15.14 17145.18 14320.01 19.73 28930.67 23370.96 Operating Profit 445.98 488.96 -8.79 719.71 719.51 0.03 1291.02 1124.94 Profit After Tax 364.01 346.84 4.95 609.64 554.16 10.01 1277.93 1107.20 PBIDTM% 4.35 5.49 -20.78 4.20 5.02 -16.45 4.46 4.81 PATM% 3.55 3.90 -8.85 3.56 3.87 -8.12 4.42 4.74 EPS (Rs.) 1.80 1.72 4.66 3.02 2.75 9.82 6.33 5.50 ^Numbers are Standalone & *Numbers are Consolidated Source: Company, Ace Equity, AUM Research Company Background HDFC Life Insurance Company Ltd. (HDFC Life), formerly HDFC Standard Life Insurance Company Ltd. was established in 2000 and got listed in NSE & BSE in 2017. HDFC Life is Mumbai based leading long-term life insurance solutions provider in India, offering a range of individual and group insurance solutions that meet various customer needs such as Protection, Pension, Savings, Investment, Annuity, Health along with Children's and Women's Plan. HDFC Life was one of the first private life insurance company to register in India and was established as a joint venture between HDFC Ltd., India’s leading housing finance institution and Standard Life Aberdeen, a global investment Company. Investment Rationale As on March 31, 2019, the Company had 38 individual and 11 group products in its portfolio, along with 8 optional rider benefits, catering to a diverse range of customer needs. HDFC Life sells policies through a multi channel network. This includes direct sales through own branches, Insurance agents, Partner Banks and through other financial institutions. The Company is also strengthened by a strong base of financial consultants. It has 412 branches and additional distribution touch-points through several new tie-ups and partnerships of 266 partners comprising NBFCs (Non-Banking Financial Companies), MFIs (Micro Finance Institutions), SFBs (Small Finance Banks), etc. and 39 partnerships within non-traditional ecosystems. In Fiscal 2012, the Company established a wholly-owned subsidiary, HDFC Pension Management Company Ltd., to operate its pension fund business under the National Pension Scheme (NPS). And in Fiscal 2016, the Company established its first international wholly- owned subsidiary in the UAE, HDFC International Life and Re Company Ltd., to operate its reinsurance business. HDFC Life Insurance Company has entered into a strategic partnership with IvyCamp, an arm of IvyCap Ventures Advisors to launch HDFC Life `Futurance’, a program for startups. Futurance aims to identify and work with startups that have built cutting edge products which could harness business opportunities in insurance value chain. HDFC Life is looking for startups working in areas of Artificial Intelligence / Machine Learning (AI/ML), Blockchain, Data Sciences, Augmented Reality/ Virtual reality (AR/VR), Internet of Things (IOT), Robotic Process Application (RPA) and computational linguistics amongst others. It has retained the top position in total new business received premium with a market share of 20.7%. This is on the back of a growth of 32% with premiums reaching Rs. 14,971 crore, while the private sector grew at 22%. Company ended the year with industry leading New Business Margin (NBM) of 24.6% compared to 23.2% in the previous year. In Q4FY19, HDFC Life’s Operating Income grew by 49% QoQ and 15% YoY to Rs. 10,247.50 crore. PAT for Q4FY19 grew by 5% YoY to Rs. 364 crore. For FY19, Net premium income & PAT grew by 24% & 15% YoY to Rs. 28,931 crore & Rs. 1,278 crore respectively. In FY19 the share of direct channel in individual Annual Premium Equivalent (APE) stood at 19% v/s 14% in FY18. Company’s AUM grew 18% YoY to Rs. 1.3t. and Solvency ratio stood at 188%. Recommendation HDFC Life is positioned as a leading life insurer in one of the fastest growing economies in the world with a growing and under-penetrated life insurance market. It had delivered consistent and profitable growth supported by its customer-centric product development and sales approach. Company’s strong parentage, trusted brand and improvement in new partnerships will help operating metrics. Its significant potential in the annuity/protection business and further improvement in the product mix should support profitability. Hence, we recommend a BUY on the stock with a Target Price of Rs. 540 with an upside potential of ~16% from the current level with an investment horizon of 9-12 months.
Transcript
Page 1: HDFC LIFE INSURANCE C L - Markets Mojo · HDFC Life Insurance Company Ltd. (HDFC Life), formerly HDFC Standard Life Insurance Company Ltd. was established in 2000 and got listed in

HDFC LIFE INSURANCE COMPANY LTD.

July 12, 2019

1

HDFC Life Insurance Company Ltd.

Industry Insurance

No. of Shares (Cr) 201.75

Face value (Rs) 10.00

Mkt. Cap (Rs. Cr) 94,347.88

Price (11/07/2019) 467.65 Book Value (Rs) 28.00

P/BV 16.70

BSE Code 540777

NSE Code HDFCLIFE

Bloomberg HDFCLIFE IN

Reuters HDFS.BO

Avg. Monthly Vol. 1,717,716

52 W H/L (Rs) 510.75/345.00

Shareholding Pattern %

Indian Promoters 51.48

Foreign Promoters 24.66

DIIs 3.40

FPIs 10.52

Body Corporate 2.08

Non-Institutions 7.84

Total 100

(As on March 31, 2019)

Recommendation

BUY

Particulars (Rs. Crs) Q4FY19^ Q4FY18^ Var% H2FY19^ H2FY18^ Var% FY19* FY18*

Premium Income 10247.50 8900.02 15.14 17145.18 14320.01 19.73 28930.67 23370.96

Operating Profit 445.98 488.96 -8.79 719.71 719.51 0.03 1291.02 1124.94

Profit After Tax 364.01 346.84 4.95 609.64 554.16 10.01 1277.93 1107.20

PBIDTM% 4.35 5.49 -20.78 4.20 5.02 -16.45 4.46 4.81

PATM% 3.55 3.90 -8.85 3.56 3.87 -8.12 4.42 4.74

EPS (Rs.) 1.80 1.72 4.66 3.02 2.75 9.82 6.33 5.50 ^Numbers are Standalone & *Numbers are Consolidated Source: Company, Ace Equity, AUM Research

Company Background

HDFC Life Insurance Company Ltd. (HDFC Life), formerly HDFC Standard Life Insurance Company Ltd. was established in 2000 and got listed in NSE & BSE in 2017. HDFC Life is Mumbai based leading long-term life insurance solutions provider in India, offering a range of individual and group insurance solutions that meet various customer needs such as Protection, Pension, Savings, Investment, Annuity, Health along with Children's and Women's Plan. HDFC Life was one of the first private life insurance company to register in India and was established as a joint venture between HDFC Ltd., India’s leading housing finance institution and Standard Life Aberdeen, a global investment Company.

Investment Rationale

As on March 31, 2019, the Company had 38 individual and 11 group products in its portfolio, along with 8 optional rider benefits, catering to a diverse range of customer needs.

HDFC Life sells policies through a multi channel network. This includes direct sales through own branches, Insurance agents, Partner Banks and through other financial institutions. The Company is also strengthened by a strong base of financial consultants.

It has 412 branches and additional distribution touch-points through several new tie-ups and partnerships of 266 partners comprising NBFCs (Non-Banking Financial Companies), MFIs (Micro Finance Institutions), SFBs (Small Finance Banks), etc. and 39 partnerships within non-traditional ecosystems.

In Fiscal 2012, the Company established a wholly-owned subsidiary, HDFC Pension Management Company Ltd., to operate its pension fund business under the National Pension Scheme (NPS). And in Fiscal 2016, the Company established its first international wholly-owned subsidiary in the UAE, HDFC International Life and Re Company Ltd., to operate its reinsurance business.

HDFC Life Insurance Company has entered into a strategic partnership with IvyCamp, an arm of IvyCap Ventures Advisors to launch HDFC Life `Futurance’, a program for startups. Futurance aims to identify and work with startups that have built cutting edge products which could harness business opportunities in insurance value chain.

HDFC Life is looking for startups working in areas of Artificial Intelligence / Machine Learning (AI/ML), Blockchain, Data Sciences, Augmented Reality/ Virtual reality (AR/VR), Internet of Things (IOT), Robotic Process Application (RPA) and computational linguistics amongst others.

It has retained the top position in total new business received premium with a market share of 20.7%. This is on the back of a growth of 32% with premiums reaching Rs. 14,971 crore, while the private sector grew at 22%. Company ended the year with industry leading New Business Margin (NBM) of 24.6% compared to 23.2% in the previous year.

In Q4FY19, HDFC Life’s Operating Income grew by 49% QoQ and 15% YoY to Rs. 10,247.50 crore. PAT for Q4FY19 grew by 5% YoY to Rs. 364 crore. For FY19, Net premium income & PAT grew by 24% & 15% YoY to Rs. 28,931 crore & Rs. 1,278 crore respectively.

In FY19 the share of direct channel in individual Annual Premium Equivalent (APE) stood at 19% v/s 14% in FY18. Company’s AUM grew 18% YoY to Rs. 1.3t. and Solvency ratio stood at 188%.

Recommendation – HDFC Life is positioned as a leading life insurer in one of the fastest growing economies in the world with a growing and under-penetrated life insurance market. It had delivered consistent and profitable growth supported by its customer-centric product development and sales approach. Company’s strong parentage, trusted brand and improvement in new partnerships will help operating metrics. Its significant potential in the annuity/protection business and further improvement in the product mix should support profitability. Hence, we recommend a BUY on the stock with a Target Price of Rs. 540 with an upside potential of ~16% from the current level with an investment horizon of 9-12 months.

Page 2: HDFC LIFE INSURANCE C L - Markets Mojo · HDFC Life Insurance Company Ltd. (HDFC Life), formerly HDFC Standard Life Insurance Company Ltd. was established in 2000 and got listed in

HDFC LIFE INSURANCE COMPANY LTD.

July 12, 2019

2

Source: Company, Ace Equity, AUM Research

Page 3: HDFC LIFE INSURANCE C L - Markets Mojo · HDFC Life Insurance Company Ltd. (HDFC Life), formerly HDFC Standard Life Insurance Company Ltd. was established in 2000 and got listed in

HDFC LIFE INSURANCE COMPANY LTD.

July 12, 2019

3

Financials

Standalone Quarterly Results (Value in Rs. Crs)

Particulars Q4FY19^ Q4FY18^ Var% H2FY19^ H2FY18^ Var%

Net Sales 10247.50 8900.02 15.14 17145.18 14320.01 19.73 Total Expenditure 14113.14 7743.00 82.27 23225.98 17258.68 34.58 PBIDT (Excl OI) -3865.64 1157.02 -434.10 -6080.80 -2938.67 - Other Income 4311.62 -668.06 745.39 6800.51 3658.18 85.90 Operating Profit 445.98 488.96 -8.79 719.71 719.51 0.03 PBDT 445.98 488.96 -8.79 719.71 719.51 0.03 PBT 445.98 488.96 -8.79 719.71 719.51 0.03 Tax 81.97 142.12 -42.32 110.07 165.35 -33.43 Profit After Tax 364.01 346.84 4.95 609.64 554.16 10.01 EPS (Rs.) 1.80 1.72 4.66 3.02 2.75 9.82

Consolidated - Technical A/C (Value in Rs. Crs)

Particulars FY14 FY15 FY16 FY17 FY18 FY19

First year Premium 2355.70 2927.90 3296.49 3657.03 4738.46 5058.11 Renewal Premium 8023.97 9337.80 9825.76 10824.46 12214.80 14214.57 Single Premium 1683.23 2564.20 3190.73 4963.99 6611.15 9913.34 Premium Earned - Net 11976.43 14762.45 16178.78 19274.86 23370.97 28930.67 Gross Premium - Direct Business 12062.90 14829.90 16312.98 19445.49 23564.41 29186.02 - Reinsurance Ceded 86.47 67.45 134.20 170.62 193.45 255.35 Income From Investments 5073.35 12249.46 1790.57 11140.64 8594.63 9027.49 Other Income 241.21 78.90 97.12 138.92 268.47 484.01 Total Income 17290.99 27090.81 18066.47 30554.42 32234.07 38442.17 Insurance Claims 14753.22 23886.30 14170.10 26055.14 26433.67 31497.24 Commissions 514.10 623.47 701.84 792.02 1074.93 1117.68 Operating Expenses 1414.77 1642.15 1871.83 2385.28 3159.30 3813.57 Other provisions 27.51 -2.51 188.57 222.35 295.99 430.38 Total Expenses 16709.60 26149.41 16932.34 29454.80 30963.90 36858.87 Operating Profit From Insurance Business 581.38 941.39 1134.13 1099.62 1270.16 1583.30 Provisions For taxation 151.60 119.34 174.55 151.98 175.55 226.79 Profit After Tax 429.78 822.06 959.58 947.65 1094.62 1356.51 Policy Holders Technical Account 765.40 670.86 718.25 786.34 1002.20 1212.70

Consolidated - Policyholders' A/C (Value in Rs. Crs)

Particulars FY14 FY15 FY16 FY17 FY18 FY19

Transfer from Technical Account 765.40 670.86 718.25 786.34 1002.20 1212.70

Income From Investments 116.11 203.31 171.21 230.31 284.12 414.27

Other Income 0.00 0.01 10.57 0.87 23.40 39.97

Other Expenses 15.77 23.00 25.37 77.55 28.59 57.24

Provisions for Diminution in value of Invest. 5.86 -0.05 3.26 -4.35 -0.41 9.73

Other provisions 217.33 46.64 38.01 35.39 156.60 308.95

Profit Before Taxation 642.55 804.60 833.38 908.93 1124.94 1291.02

Provisions For taxation -82.76 19.07 16.60 22.01 17.74 13.09

Profit After Taxation 725.31 785.53 816.79 886.92 1107.20 1277.93

Balance B/F from Balance Sheet -843.60 -235.00 382.99 983.68 1,606.12 2,384.48

Appropriations -118.30 215.42 1,199.77 1,870.59 2,713.32 3,662.40

Adjusted EPS 3.64 3.94 4.09 4.44 5.50 6.33

Source: Company, Ace Equity, AUM Research

Page 4: HDFC LIFE INSURANCE C L - Markets Mojo · HDFC Life Insurance Company Ltd. (HDFC Life), formerly HDFC Standard Life Insurance Company Ltd. was established in 2000 and got listed in

HDFC LIFE INSURANCE COMPANY LTD.

July 12, 2019

4

Consolidated Balance Sheet (Value in Rs. Crs)

Particulars FY14 FY15 FY16 FY17 FY18 FY19

Share Capital 1994.88 1994.88 1995.29 1998.48 2011.74 2017.38

- Share Application Money - - - - 0.89 0.39

Reserve and Surplus -19.49 598.47 1199.50 1795.53 2692.48 3627.84

- Fair Value Change Account Cr / (Dr) 2.73 -2.00 -41.24 32.31 30.16 -3.01

Borrowings

Policy Holders Funds

Fair Value Change Account Cr / (Dr) 31.05 61.26 53.61 398.14 622.02 1112.13

Policies Liabilities 14339.67 19279.20 24400.64 32382.70 42330.17 53661.85

Insurance Reserve

Provisions for Linked Liabilities 34207.37 44920.34 45727.02 53800.48 57185.39 63377.41

Funds For future Appropriations 312.95 464.15 705.48 866.78 959.20 1103.01

Total Sources of Funds 50869.16 67316.29 74040.30 91274.43 105832.04 124897.00

Applications of Funds

Investments - Shareholders 1613.49 2194.71 2553.78 3231.41 4057.35 5036.00

Investments - Policies Holders 14706.23 19908.48 25862.87 34691.54 45347.14 57124.46

Assets Held to cover Linked Liabilities 34207.37 44920.34 45727.02 53800.48 57185.39 63377.41

Loans 47.67 125.63 93.07 47.85 18.74 79.59

Cash & Bank balances 445.04 572.50 727.40 797.38 1110.50 1244.45

Advances & Other Assets 276.40 296.69 306.43 356.73 419.00 550.27

Other Assets 694.89 964.02 926.44 1817.71 2003.01 2269.77

Current Liabilities 1434.09 2035.42 2512.51 3775.32 4606.70 5060.13

Short Term Provisions 27.41 33.20 41.60 46.82 44.09 58.71

Fixed Assets 591.39 686.27 705.69 681.33 717.62 734.49

Less: Accumulated Depreciation 261.94 290.17 320.45 343.96 381.20 410.80

Total Net block 329.44 396.10 385.23 337.37 336.42 323.69

- Capital Work in Progress 10.13 6.44 12.16 16.09 5.28 10.19

Total Assets 50869.16 67316.29 74040.30 91274.43 105832.04 124897.00

Contingent Liabilities 145.69 176.16 100.28 665.73 827.90 1530.62

Source: Company, Ace Equity, AUM Research

Page 5: HDFC LIFE INSURANCE C L - Markets Mojo · HDFC Life Insurance Company Ltd. (HDFC Life), formerly HDFC Standard Life Insurance Company Ltd. was established in 2000 and got listed in

HDFC LIFE INSURANCE COMPANY LTD.

July 12, 2019

5

Aum Capital RESEARCH DESK Rajesh Agarwal Head of Research 033 – 40572122 [email protected]

Shreyansh N. Mehta Manager Research 033 – 40572124 [email protected]

Disclosure & Disclaimer

This document is solely for the personal information of the recipient and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved) and should consult their own advisors to determine the merits and risks of such an investment.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. AUM Capital Market Private Limited (hereinafter referred to as “AUM Cap”) or any of its affiliates/group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. AUM Cap has not independently verified all the information contained within this document. Accordingly, we cannot testify nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.

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