HDFCLIFE delivered a stable performance, with shareholder profits growing 5% y-o-y to `3.6 bn. In Q4FY19, un-weighted premium increased 15% y-o-y (APE growth of 9% y-o-y), led by 27% y-o-y growth in single premium.
For FY19, total premium/PAT grew 23.8%/13.1% y-o-y to `289 bn /`12.5 bn. For FY19, the share of the protection business increased to 16.7% of total APE (7% on an individual APE basis). Margins improved to 24.6% (v/s 23.2% for FY18), driving 20% y-o-y growth in VNB to `15.4 bn (17% y-o-y in FY19), as the persistency ratios held largely stable.

The share of ULIPs in individual APE declined by 200bp y-o-y to 55%, while the composition of the non-par savings business increased sharply to 20% (+1100bp y-o-y), aided by sharp growth in the annuity business. HDFCLIFE continues seeing a significant potential in the annuity/protection business and expects a further improvement in the product mix. Total commission and operating expenses growth moderated to 6.9% y-o-y (16.5% y-o-y for FY19) to `16.1 bn, while the total expense ratio was at 15.6%. The share of direct channel in individual APE stood at 19% v/s 14% in FY18.

In FY19, HDFCLIFE reported operating RoEV/RoE of 20.1%/24.6%, while EV increased to `183 bn. We expect HDFCLIFE to deliver 26% CAGR in new business APE over FY19-21, while the margins are likely to improve at a calibrated rate to 26% by FY21. We, thus, estimate a 27% CAGR in VNB, with RoEV sustaining at average ~20% over FY19-21. We roll forward our estimates to FY21 and value HDFCLIFE at `475 per share (3.6x Mar’21E EV). Maintain ‘Buy’.

The company continued maintaining a balanced product mix, with ULIPs contributing 55%, PAR 18% and non-PAR 20% of individual APE. Cross selling to group customers formed 8.4% of the individual new business policies sold in FY19. The company has a well-diversified distribution mix, with 412 offices, 266 partners and 39 new ecosystem partners. HDFC Life has delivered strong return ratios with average FY16-19 RoE/RoEV at 25+%/21.1%, respectively. We expect return ratios to remain strong on healthy new business margins, quality underwriting, and strong cost control.