Execution is likely to ensure superior profitability; company remains industry bellwether; ‘Add’ retained.
HDFC Life has invested in developing technology backed digital systems and processes to diversify its growth engine, increase operational efficiencies and customer satisfaction. The company is a dominant player in the digital ecosystem supported by strong tie-ups with multiple partners, proprietary platforms and applications. Product innovation, strong brand recognition, digitally enabled distribution touch points and strategic partnerships will provide competitive advantages. We retain our positive stance on the company with Add rating and fair value of Rs. 605.
Focus on customer-centric technology backed innovations
HDFC Life has invested in technological platforms and systems to improve customer lifecycle management and improve efficiencies for various stakeholders like distributors, sales team and others. While competition is rapidly increasing, broader presence and strong tie-ups with a multitude of partners provides sustainable advantage.
Strong strategic tie-ups and new digital processes will drive growth
HDFC Life has developed proprietary platforms, activated 150+ bots and tied up with financial and non-financial digital players (250+) for product delivery and servicing. Apart from strategic tie-ups, the company has provided service enablers, surrogate platforms and processes to stimulate growth for these partners. While early mover advantage will drive growth through digital platforms, continued product innovation will provide relative advantage to peers.
To remain the industry bellwether
We believe that HDFC Life will remain at the edge of innovation and hence a bellwether for the life insurance industry. The company was one of the first players to market online life insurance; other large players have not forayed much into the non-par business (mostly doing annuities), following a deferred annuity policy launched by the company last year and Sachay Plus early this year. Our meetings with the management reassured our faith in HDFC Life’s superior business strategy, execution to consistently deliver superior margins and profitability. Our forecasts of stable VNB margins may as such be revised up over subsequent quarters. At our AV-based fair value, the business will trade at 4X EV as compared to 2.7-3X for most other players.