Shares of HDFC Life Insurance Company Ltd climbed 11 per cent following a better-than-expected set of Q3 results. As the outlook of more than 15 per cent value of new business (VNB) growth re-emerges from the challenges of open architecture, lower tax exemption and hike in surrender charges, anlaysts highlighted the long-term compounding prospects of the stock. A few of them upgraded the stock to buy as they believe the recent negatives are fairly priced in.
ICICI Securities said 9 per cent YoY growth in VNB in the December quarter, which also saw a 174 basis points sequential improvement in VNB margin. This, the brokerage said, underlines the limited impact of surrender price hike and also reiterates the sustainability of 15 per cent VNB growth outlook. It has upgraded HDFC Life to 'Buy' from 'Add' earlier and suggested a revised target price of Rs 700.
The stock surged 10.69 per cent to hit a high of Rs 657.80 on BSE.
Nomura India noted that it had downgraded HDFC Life to neutral in Q2, factoring in the impact of surrender value in Q3 along with a slowdown in growth and higher valuations.
"Our thesis has largely played out over the quarter and the stock is down 17 per cent (underperforming benchmark Nifty by 7 per cent) over the past three months. Despite concerns about further impact of surrender value and additional slowdown in growth, we believe the current valuation captures the negatives adequately; hence, we upgrade our rating to Buy from Neutral with an unchanged target of Rs 735," it said.
Nuvama said HDFC Life's VNB margin at 25.7 per cent beat its estimate by 3.2 per cent. Improvement in sequential VNB margin was largely on account of the repricing of NPAR products and successful pass-through of the bulk of increased surrender values to policyholders and distributors.
"Given slower growth in individual APE of just 11.9 per cent YoY, we are tweaking FY25E/26E/27E VNB down by 0.4 per cent/0.5 per cent/1.5 per cent. This along with a valuation rollover to FY27E increases our target to Rs 850 (from Rs 830), implying an FY26E/27E P/EV of 2.8 times/2.5 times; maintain ‘BUY’," it said.
Antique Stock Broking suggested a target price of Rs 830 on the stock.