Update on the Indian Equity market:
On Tuesday, the Nifty50 index closed at a record high of 13,055 (+1.0%) as hopes for faster economic recovery were renewed due to Covid-19 vaccine progress. BANK (+2.5%), PRIVATE BANK (+2.3%), and REALTY (+1.8%) led the sectoral gainers and there were no sectoral losers. Among the stocks, ADANIPORTS (+4.5%), AXISBANK (+3.9%), and HDFCBANK (+3.5%) led the gainers. TITAN (-1.5%), HDFC (-1.4%), and BPCL (-1.2%) led the laggards.
Excerpts of an interview of Ms. Vibha Padalkar, MD & CEO, HDFC Life aired on CNBC TV18 on 20th November 2020:
• The green shoots are being seen and each month has been better than the previous month. On YTD basis, the industry has declined 8% YoY while HDFC Life has grown 8%. The month of October 2020 has been one of the best with 50% growth in new business premium.
• The growth is not linked to the festive season because insurance is a long-term protection and savings outlay. The growth is due to inherent need felt by the customers. Due to the high conviction about the need of insurance, the growth has been across distribution touch points-bancassurance, and the new age ecosystem channels.
• HDFC recently sold some stake in HDFC Life due to regulatory requirements. RBI had asked HDFC to get the shareholding in both of its insurance subsidiaries to 50% levels which led to stake sale to comply before December 2020. Despite the stake sale, HDFC will continue to remain the promoter in the foreseeable future.
• Penetration levels remaining so low, the growth opportunities for HDFC Life are enormous.
• Sanchay policies- the company keeps repricing it and over the past 18-24 months since the product was launched, pricing for new policies has moved in tune with the interest rates.
• The company’s focus has been on prompt protection-mortality, morbidity, longevity and interest rate risk.
• Unit linked products are continuing to see an uptick as there is a recovery in the equity market.
• Covid-19 products are awaiting approval and it is in combination with having an indemnity on covid and is expected to do well. There is an uptick on the Covid-19 claims, which is within the company’s actuarial assumptions.
• The protection products witnessed 38% growth and is one of their best performing products, followed by Sanchay product. Sanchay par advantage has catapulted to 30-35 % of their business and is under the participating umbrella of products.
• They expect a high single digit growth for Annual Premium Equivalent (APE) for FY21E. On Value of New Business (VNB), this year is going to be flat, and margins are expected to be at the same level as FY20.
Consensus Estimate: (Source: market screener website)
• The closing price of HDFC Life was ₹ 666/- as of 24-November-2020. It traded at 97x/ 83x/ 66x the consensus earnings estimate of ₹ 6.9/ 8.0/ 10.1 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 642 implies a PE multiple of 64x on FY23E EPS of ₹ 10.1/-.
• In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.
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