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HDFC Life: upgrade to ‘hold on’, raise TP to Rs 720 from Rs 610

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The pension affiliate saw robust growth of 98% from AUM to over 160 billion rupees.

Online retailing and new categories are driving spending recovery. Card spending increased 11% year-on-year, but new card acquisitions were down 8% year-on-year. The retail and corporate sectors saw their spending return to normalized levels. Online spending in categories other than travel (up 35-50% from pre-COVID-19 level) is driving growth. The share of gun loans continued to decline from 38% (pre-COVID-19) to 28%. Thus, lower interest rates more than offset the benefit of lower financing costs. The NIM therefore fell to 13.2% (compared to 14.5% in 3Q and 16.6% in 4Q20). Additionally, higher opex growth (+ 5% yoy) kept operating profits subdued (down 1% yoy).

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Much like ICICI Pru Life, HDFC Life’s investment variance (10% increase in RoEV) and growth assumptions of around 1,000 basis points based on the confidence boosted by its March monthly disclosures turn into a 15% / 19% increase in our EV FY22E / 23E. It raises our target price to `720 (` 610 earlier) with the multiple unchanged. This, coupled with the performance of the muted stock, drives the upgrade to ‘hold’.

Non-equivalent savings, annuity and participation products continued to show strong growth in Q4FY21. The increased momentum of peer and non-peer is also due to an improvement in the performance of bancassurance in fiscal year 21. The focus on the huge opportunity in the retirement segment led to growth of 46% to T4FY21 in the annuities sector.

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It now forms 5% of the overall APE and 20% of the total NBP. Management expects this segment to become as important as protection (13% of EPA) in the medium term. The pension affiliate saw robust growth of 98% from AUM to over 160 billion rupees.

Unlike its peers, the company had taken a cautious stance in the third quarter of FY21 and slowed the growth of its protection portfolio to focus on building a quality book. This cautious approach would be fueled following the unfavorable mortality hit in EV to the tune of Rs 1.8 billion.

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During the year, the company settled over 290,000 death claims (covid plus non-covid) and paid over INR 30 billion. While short-term supply side challenges, customer reluctance to undergo medical exams and pricing headwinds remain, we are quite confident in the medium-term growth of the business. , motivated by the underpenetration of life insurance and the induced pandemic. mindset reset ”on the idea of ​​protection.

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