HDFCLIFE reported an 18% Y-o-Y increase in total APE, led by continued growth in the PAR segment, while sequential ULIP growth was also healthy. This resulted in a better PAR assets mix, while the share of non-PAR/term moderated, impacting the VNB margin (24.7% v/s 26.6% in 9MFY20).

VNB growth moderated to 25% Y-o-Y (45% in 9MFY20), while the improvement in the persistency ratios facilitated a pick-up in renewal premium growth from 10% in 1HFY20 to 14% in 3QFY20. We marginally cut our growth and margin assumptions, and estimate HDFCLIFE to deliver an average 20% RoEV over FY20-22. Maintain ‘Neutral’.

HDFCLIFE reported a 14% Y-o-Y increase in net premium income, primarily led by 23% YoY growth in first year premium. However, shareholder earnings moderated by 2% Y-o-Y to `250 crore (12% miss) due to higher new business strain (+22% Y-o-Y). Renewal premiums increased 14% Y-o-Y, aided by an improvement in the persistency ratios. Individual APE growth came in at 21% YoY, led by PAR/ULIP business.

VNB margin moderated to 24.7% (26.6% in 9MFY20) from 25.4% in 2QFY20 on the back of the lower mix of non-PAR savings/term business. VNB thus increased by 25% Y-o-Y to `450 crore (+45% YoY in 9MFY20). In 9MFY20, EVOP stood at `2,550 crore, while operating ROEV was at 19.0%.
Total commission expense increased by 34% YoY, while operating expenses were up 15% YoY. Total expense ratio thus stood at 17.6% (+60bp YoY) v/s 19.3% in 2QFY20. In 9MFY20, the share of direct channel in individual APE increased to 21% (+400bp Y-o-Y).

The company remains a market leader and is well positioned to drive business growth, led by continued product innovation and superior customer service. We estimate the VNB margin to sustain at ~26.2% in FY20.