HDFC Life stock up 3% ahead of Q4 results today; JM shares target price

Shares of HDFC Life Insurance Company Ltd (HDFC Life) jumped over 3 per cent in Thursday's trade ahead of its March quarter results later in the day. Ahead of its quarterly results, JM Financial said that HDFC Life, having already weathered headwinds from competition in the parent channel, Exide Life acquisition and taxation of higher ticket policies, is its top pick in the sector.

"With its strong product proposition and enhanced distribution strength of parent banca and agency, we have the greatest comfort in its growth delivery, with margin expansion expected from FY26 onwards. We see 35 per cent upside from current levels for our target price of Rs 819," it said.

On Thursday, HDFC Life shares were trading 3.16 per cent higher at Rs 623.60. The stock has de-rated from 5 times one-year forward EV in March 18 to 2.5 times in March 2024.

The de-rating coincided with competition coming in on its parent banca, even though margins expanded from 22 per cent in FY17 to 27.4 per cent in FY22.

As HDFC Life gains counter share in the HDFC banca, JM sees stock rerating ahead.

JM Financial expects HDFC Life to report flattish new business APE for FY24 on back of substantial loss in its higher ticket size business share. Going forward, it is building in highest growth for HDFC Life in its coverage universe, led by gains in parent banca and resilience brought in by balanced product mix.

VNB margins expansion should be back-ended to FY26 as operational gains are slow-moving, JM Financial said.

"HDFC Life, by selling shorter term non-par products to affluent segments, par products with longer tenor and ULIPs with 30-40x life cover has insulated itself from large fluctuations in VNB margins from product mix shift, and we believe the company can now grow through customer demand in any of the three savings categories," it said.