Good point. Do you know what is the discount rate considered now vs 2021?
No idea but directionally I believe HDFC life should do better in 2024 for two reasons. One is of course easing of valuations and second is potential catch up rally that could play out in large caps with underperforming large cap quality stocks getting flows.
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Quarter after quarter this company fails to impress. Valuations still high in spite of a long time correction. Holding on to it since 2019 with negligible gains.
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I can see a lot of positives here to feel good about the stock 
First, despite regulatory headwinds their performance has been decent. Second, they are outperforming many of their peers on key metrics such as VNB, APE etc. Third, big chunk of insurance market share is with a PSU (LIC) and I would bet on HDFC (or any well run private insurance player) to eat into that. Last, insurance penetration is still quite low in India (I believe among the lowest in G20 countries) and is projected to grow at steady rate.
So essentially for HDFC Life, my bet is not on just an increasingly larger share of current pie but a growing pie itself. I expect 1-2 quarters of further wait before we start seeing encouraging action in stock prices.
Disc- Invested and continue to add on dips
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When I bought in 2019, the thesis was the same.
Low penetration of Life Insurance, a quality group and decent growth. But not much has played out since. Regulatory interventions have pulled it back often and VNB growth has been below expectations. Zero points for performance, 100 for my patience. 
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The biggest overhang for the insurance company stocks is the looming tax dispute battle for agent commissions. Quote: āHDFC Life on June 23 said it had received a show-cause notice from the Directorate General of GST Intelligence (DGGI) demanding Rs. 942 crore tax for the July 2017 to FY22 periodā.
The Tax Department is alleging that Insurance companies are paying agent commissions far in excess of what is legally permissible. Please note that the issue is industry-wide and not limited to HDFC Life alone. If the Tax Authorities are right, then their claims on Insurance Cos. are aggregating 1000ās of crores.
This in turn can lead to prolonged tax litigation. It is tough to predict the outcome and timeline of such disputes. Plus, any clamp down on agent commissions could adversely affect the distribution network of insurance policies, which will further impact the future business growth.
Source:
Disc: Invested since more than 1 year
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When i restarted investing in the markets, this was my first buy, in 2019. If I had put this money in a savings account, it would have generated more. I really donāt know why insurance biz is not picking up in spite of low penetration and a black swan event like COVID. I have a theory but it is more philosophy than economics
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This looks bad from taxation regulatory perspective.
I think, with advanced IT systems in place, this could have been detected in 2018-19 itself, so that by this time, litigation could have been resolved.
It seems that, the IT (Information Technology) systems are not used and manually lot of calculations are done hence it is taking so much time to find mistakes. Does not bode well for nation with largest IT workforceā¦
Q4 FY24 Update:
No. of shares = 215 cr (As of 31-12-2023 as per published data)
Embedded value (12MFY24) = 47,468 Cr
VNB (12MFY24) = 3501 Cr
IEV + VNB (12MFY24)/share = 47,440/215 = 237.06
Valuation(27/Apr/24) = 587 / 237.06 = 2.47x
This looks low as compared to historic valuations, if my calculations are correct.
HDFC LIFE has delivered a profit after tax of Rs. 1,569 crore, implying a YoY increase of
15%, fuelled by 18% increase in profit emergence from back book. This also looks reasonable inspite of headwinds during FY24.
Management is targetting more business from HDFC Bank going forward, and also more growth from Tier 2/3 cities. Whether these aspirations can be translated into reality, need to be looked at after few quarters.
P/B is lower as compared to LIC and SBI LIfe, but Market Cap/Sales is higher. PAT growth over 5 years is less than SBI LIFE but better than ICICI Pru Life.
It is not undervalued based on these parameters, but other parameters relevant to Insurance business mentioned above could be more useful to decide valuations.
Invested and Long term story looks intact, but overhang on stock price may continue due to low profitability and income tax related matters. Keeping expectations low as Insurance business is highly regulated business. This investment is only for 5+ years ore more, not from 2-3 years perspective as profitability over short term can not be predicted easily.
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They are more and more depending on HDFC bank for their business which reflects poorly on their other distribution channels. I donāt know why they are depending more on HDFC bank. Why not develop other channels.
Also does anyone know about the dependence of SBI Life and ICICI Life on their banks.
And in their concall they have said that they will compromise on their margins to get growth which clearly shows they are struggling.
Disc: HDFC life is one of the largest position in my portfolio
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Yes, I also felt that, if they are planning to increase business from HDFC Bank that means other channels are not firing.
Good that you have captured the point that, they are willing to compromise on margins which I have missed while going through call notes. This is a concern as profitability will be poor going forward.
Long term story is intact, but it looks like, we are loosing on short term gains by investing in this stock. It will be interesting to see if SBI LIFE is doing better in terms of year on year EPS growth. Though EPS and P/E is not the correct measure to value Life Insurance Business, but still it may be worthwhile to do this comparison.
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Last week I got a call from Yes Bank relationship manager trying to pitch some savings / investment scheme of HDFC Life
Too much of regulatory intervention in the life insurance sector is impacting price movement in insurance companies. HDFC LIFE was the biggest investment in my portfolio sometime back. Now cut holdings by more than half.
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