HDFC Life Target Price, Estimates Cut By Brokerages As Margins Disappoint

Most brokerages have cut the earnings estimates of HDFC Life Insurance Co. and trimmed their target price due to a weaker value of new business for the company. The VNB margin missed forecasts and product mix and guidance for the current financial year was healthy, yet relatively conservative compared to past years, Morgan Stanley said in a note on April 18.

The brokerage has trimmed forecasts and target price, and expects the stock performance to be muted in the near term. "We moderate our annual premium equivalent and VNB margin forecasts, thus cutting VNB by 7% and 8% for F25 and F26."

HDFC Life's top line rose in the fourth quarter of financial year 2024. The private insurer's net profit increased 15% year-on-year to Rs 412 crore in the quarter ended March.

Nomura Research has cut the annual premium equivalent and VNB estimates for FY24–27 and expects the company to register a 14%/15% compound annual growth rate over this period. Margin contraction in fiscal 2024 was fuelled primarily by two factors — the operating leverage gap and an increase in the share of the low-margin unit-linked insurance plans in the overall product portfolio, the brokerage said in a note on April 18.

Due to a change in product mix and rising competitive pressure, HDFC Life's fourth-quarter VNB margin was weaker than HSBC Global Research expected.

Morgan Stanley has an 'overweight' position on the life insurance company, while Nomura and HSBC have a 'buy' call. But all the brokerages have cut their target price.

• Morgan Stanley maintains an 'overweight' rating on HDFC Life Insurance Co. and cuts the target price from Rs 780 apiece to Rs 745 per share, implying a potential upside of 23% from the previous close.

• Cuts FY25/26 value of new business estimates by 7%/8%.

• Expects muted stock performance in the near term.

• Sees upside for HDFC Life from one-year perspective.

• Nomura maintains 'buy' rating on HDFC Life but has also cut the target price from Rs 740 to Rs 680 apiece, implying a potential upside of 12% from the previous close.

• FY24 margin contraction due to operating leverage gap, rising share of the low-margin ULIPs.

• Builds VNB margins of 27%, lower than FY23 levels.

• Maintains rating on balanced product/distribution profile.

• The brokerage maintains 'buy' with the target price cut from Rs 800 earlier to Rs 750 per share, implying a potential upside of 23% from the previous close.

• VNB margin was impacted by changes in product mix and rising competitive pressure.

• Management plans to focus on APE growth over margins in FY25.

• Has cut FY25/26/27 VNB margins by 110/70/70 basis points respectively.

• Expects a FY25-27 average VNB margin of 26.7%.