MOSL: HDFC STANDARD LIFE (Buy)-Steady quarter-business momentum remains strong

HDFC Standard life: Steady quarter; business momentum remains strong;

(HDFCLIFE IN, Mkt Cap USD15b, INR492, TP INR475, 3% Downside, Buy)

HDFC Life Insurance (HDFCLIFE) delivered a strong 4QFY18 performance, with 40% YoY growth in shareholder profits to INR3.47b, significantly ahead of our estimate. Key highlights:

1. Individual weighted received premium (WRP) grew 11% YoY, while overall premium rose 24% YoY.
2. For 11M FY18, the market share in individual WRP improved to 13.2%. Group segment (largely protection business) market share stood at 29.5%.
3. Premium mix moved in favor of ULIPs, but the company mentioned that it would look to increase the share of high-margin products over the medium term.
4. Operating expenses stood at 12.3% for the quarter and at 13.5% (v/s 12.6% in FY17) for FY18.
5. New business margin improved to 23.2% for FY18, driving 39% YoY growth in the value of new business (VNB) to INR12.8b.
6. Operating return on EV remained stable at 21.5% (FY17: 21.7%), which, coupled with a stable solvency ratio of 192%, enabled HDFCLIFE to announce a dividend of INR3.3b (30% payout).

• Premium growth healthy; protection business now at 11.3% of total new business APE: HDFCLIFE reported 32% YoY growth in total new business (32% YoY growth in APE terms too), even as renewal premiums increased by a modest 13% YoY in FY18. The company's market share among private players, thus, improved to 19% on the basis of un-weighted premiums (13.2% market share on the basis of individual new business APE). The share of ULIPs in individual new business APE increased to 57% from 53% in FY17, while the composition of the participating segment declined sharply to 28% from 35% in FY17. The company continues to see significant potential in the protection business, and aims to improve the product mix, which should further support profitability.