HDFC Life Insurance Company

Stock Opportunities
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PDF File for the ratios -

Insurance ratios.pdf (373.2 KB)

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Standard Life Investments Limited have changed its name to Abrdn Investment Management Limited effective from November 26, 2021 as per HDFC AMC disclousres.

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hi all,
firstly, happy new year.

I was going thru P&L of hdfc life. there is a big spike in both sales and expenses.
what could be the reason for this?
for expenses, I assumed lot of claim settlement but what about sales of such magnitude ?

Thanks

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@navneetsinghvi More and more people are realising the importance of life insurance

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ok. that answers revenue part.
is higher covid claims results into spike in expenses ?

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You need to understand how Life Insurance expensing works. All first-year premiums are expensed. Please research further.

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HDFC Life keep going southward for the past few sessions. While a healthy correction makes this stock attractive, is there anything alarming with the overall fundamentals.

Disc: invested a tracking position

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HDFC Life has launched a new product SRP(Systematic Retirement Plan). Interesting searching this term on google brings out almost all HDFC life associated pages only .

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I don’t see anything dubious here. The persistency is improving QoQ AND YoY. VNB margins are stable and improving. Continuously gaining mkt share. And top of that doing well in these crisis where other life insurers are facing the heat.

Disc- Invested and may get biased

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Some short term events/stories (which are immaterial over long term):

  1. Once the books of HDFC Life and Exide Life are merged, then the overall metrics will change in short term. E.g. the VNB margin will be reduced. Over long term merged business will take colors of HDFC Life, e.g. the VNB margin will improve and the EV from Exide Life will enjoy the premium multiples of HDFC Life.
  2. LIC listing might also be having some overhang on HDFC Life and other listed Life Ins companies.
  3. Thirdly Covid has caused elevated claims (which are unlikely to remain elevated forever or if so then the industry will increase Premium cancelling out the negative impact).

Ignoring these side shows, long term wise HDFC Life seems to be on strong footing business wise, doing stellar VNB growth and maintaining industry leading VNB margins.

Disc: Invested and biased.

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How does one arrive at insurance company’s intrinsic value, like the way one does DCF for regular business. The talk is all about HDFC life gaining market share but is there a way to broadly arrive at its intrinsic value?

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Best way to value insurance company is to give a multiple of embedded value - HDFC shows its Indian GaaP based EV in its presentation (this computation is subject to lot of parameters so take it with pinch of salt) - it is trading at ~4X its IEV which is on the higher side

ICICI Pru and SBI life are at 2X of IEV

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If I am not wrong, even 2-3 years back and close to its IPO, many articles/analysts mentioned that HDFC Life is expensive as it is trading at 4X its EV.

Does this mean in last 3-4 years, EV of HDFC Life has been stagnant? I doubt so as it has been growing decently YoY.

So whats the catch here? Is this because of IEV vs EV calculations or because of Exide Life acquisition? I dont think there has been any equity dilution so how come it still trades at 4X EV when share price is almost at same levels as on May 2018 and Aug 2019? Thanks

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HDFC IPO was ~290 rs and at that time (2017 ) it was sold at 4X EV. The share price has increased from ~290 to 570 to reflect additional EV

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Latest EV for HDFC Life is roughly 30,000 crores. I am not sure how much it is for Exide. Appreciate if anyone can share the same

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Thanks for highlighting this. If you are aware, can you pls also let us know the EV CAGR of HDFC Life vs SBI Life vs ICICI Pru vs Max Life from 2017 till date? I think this will give better perspective in terms of what future may behold in terms of valuation for HDFC Life. Thanks

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With the present correction, seems its trading at less than 4x EV. Being a leader among Pvt pack, I believe it commands bit of a premium.

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4 Year EV CAGR (Mar 2017 to Mar 2021) is: HDFC Life - 20.8%, SBI Life - 19.2%, ICICI Pru - 15.8%

I pulled the data from various sources, so there could be minor variations.

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Thanks, this clearly proves HDFC Life (and SBI Life) growth is superior to that of ICICI Pru. Along with the another important fact that who took how much risk to achieve and show that growth. Based on some parameters like reinsurance percentage, product mix etc. - It looks like HDFC takes lesser risk that ICICI Pru.

In short, HDFC is able to achieve better growth than ICICI even by taking lesser risk. I think that makes it earn better valuations.

Disc: Invested & biased. Not a buy/sell recommendation.

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