For insurance companies, as you have pointed out embedded value vs price is better indication of valuations (among others) and HDFC Life’s has been the highest among peers.
That said I have been very satisfied with the way company has been performing and as I maintained in one of my previous posts recently I believe this year stock can perform well. Recent moves in stock prices have been encouraging and purely from technical perspective counter has seen good buying and broken several important resistance levels.
Hii, I am new to this thread. I have studied the Insurance sector in the past few months. The big advantage that HDFC Life Insurance has here is the benefit of cross selling to its HDFC Customers. The bank has put a cap on its sales person at 65% of HDFC Life Insurance to be sold and the rest by other insurance providers. So far the adoption has been rather slow with other life insurance providers like Tata AIA and Birla Sun Life Insurance gaining pace.
However, when it comes to products- their product innovation and variety is very poor with simple schemes.
If the company is able to take advantage of HDFC Bank ecosystem the bottomline growth can be immense leading to huge value creation for all shareholders
Valuation(As of 07 Nov 2024) = 711 / 250.09 = 2.84x
It has moved up from 2.47x to 2.84x during Q4 FY24 and Q2FY25.
If my calculations are correct, then the share price looks close to Fair Value to me or marginally undervalued.
Share Price has moved up from 475 to 711 during Mid 2022 to November 2024 i.e. about 50% which looks reasonable for a large cap stock.
Currently with No negative taxation imposed during current FY, slow growth from here looks possible but Insurance being highly regulated sector, predicting future growth is difficult based on my experience.
Disclosure: Invested from lower levels during corrections in 2022 and Holding from 5+ years perspective. No addition during 2024 to the position.
Recent Interview of HDFC Life MD & CEO with Money Control highlighted following points:
(1) Persistency in 13th and 61st Month is going up for HDFC Life which is a positive.
(2) ULIP now contributes about 36% which is slightly less than Q1 FY25 but it at elevated level due to Stock Market uptrend as compared to 5-6 years back when it was 25%.
(3) HDFC Life may not launch Health Insurance products even if those are allowed by IRDA. They will continue to increase their current Pie of products, both Par and Non-Par.
(4) HDFC Life has about 16% to 18% returns on their Embedded Value which is reasonable.
(5) Sometimes when Banking stocks do well, Life Insurance stocks do not do that well, since Markets perceive them as Long term stocks.
(6) Even if more FDI is allowed in Insurance Sector, actual investments may not go up as Economics are always not favorable for FDI. They will also look at other opportunities before investing more funds in India.
(7) Customers are slowly buying more Life Insurance policies compared to 2019.
(8) Product Factory and Innovation will be the focus of HDFC Life going forward as they always have launched New products in the past decade, and they would like to continue with Innovation.
HDFC Life MD said that, though this move by IRDA looks good to enhance the reach of Health Insurance in India, but she sounded cautious as HDFC Life may not immediately go for such products.
She mentioned that, there are disruptions happening in Life Insurance domain as well and their first priority is to enhance their coverage in this domain.
I do not recollect all points, so I will say they might look at Health Insurance products but may be with next priority.
May be they don’t want to cannibalize HDFC ergo’s business. This move of govt to allow life insurance companies to sell health insurance will benefit pure life insurance companies with no group companies operating in health insurance space.
Any particular major reason for meltdown in insurance companies in the last two months other than the markets rationalizing? Insurance companies (SBI life, HDFC Life etc) have fallen much further - almost 25% falls when markets have fallen 10%
It seems that, some of the recent events such as, there is a possibility of increasing FDI in Insurance sector from current 74% to 100% have contributed to this downfall to some extent.
Though some of these initiatives could be positive for Insurance sector over long term, currently Market is factoring in more competition from Global companies which might launch their operations in India. Some global partners which are currently jointly holding insurance business in India might launch their independent operations if 100% FDI is allowed.
Some of these news and continuous alarms which are raised by regulators about mis-selling always cause some negative triggers.
These are my initial thoughts.
I may be wrong in my analysis, as I am still learning Insurance sector.
Interesting. Here’s my other thought - the insurers themselves are also to blame for stagnant share price - they have been lowering margins to maximum possible extent in order to win market share. While succeeding in winning share, earnings is close to zero and hence in the last five yrs, stock price has been stagnant. For this, check OPM till 2020 for HDFC Life - it was hovering around 4% with modest revenue gain in the previous 7-8 yrs. However, post 2020, they (and other insurers) have reduced margins to close to zero while growing revenues leaps and bounds but driving earnings close to nothing, leading to stock price stagnation. So while regulation is a negative trigger, insurers themselves are also to blame for the last few yrs
The major reason for this is the bancassurance point. Banking contributes to the majority of Insurance sales due to availability of customer data and simple cross-selling.
HDFC Life was bullish on this and had diverted alot of funds to fuel growth, the RM’s were nudged to sell 80% HDFC Life and 20% other insurers. Now as per new law the number cannot go beyond 50% for bankassurance for HDFC Bank as insurance.
This is a big threat to their sales as their biggest channel has stagnated growth. This however is an amazing opportunity for Private Insurers who are not associated with banks. Bajaj Finserv should have been a beneficiary for the same. And if you notice their share price hasn’t corrected if you pit it against HDFC LIFE, SBI Life.
I am looking for new entities in the Life Insurance Space having already seen these names not giving any value. Ditto is a good bet, waiting for the same to be listed
This law is not announced yet but I think it will be announced soon because otherwise Insurance as a seperate entity may cease to exist. Working for an Insurance company in the private space I know how much we rely on bancassurance to drive growth and the day that banks decide to completely push their product Non- bank private insurers will cease to exist
