HDFC Life Insurance stock valuation needs a growth agent

APE for a beingness security institution is comparable to the revenues of companies successful different industries. Moreover, economical profit, besides known arsenic the worth of caller concern (VNB), is simply a important metric for valuing a beingness security company. Here, accounting nett oregon nett aft taxation (PAT) does not connection a existent representation of a beingness security company's show arsenic costs are mostly recognized upfront, but nett from an issued argumentation is earned implicit a fig of years.

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Therefore, alternatively of utilizing the marketplace capitalization divided by PAT to deduce the price-to-earnings multiple, 1 should see dividing marketplace capitalization by VNB to measure a beingness security company. This ratio stands astatine 37x for HDFC Life based connected FY24 results, which seems precocious fixed the 5% driblet successful FY24 VNB to ₹3,500 crore. 

Even aft adjusting for the non-recurring VNB of ₹276 crore from past year’s base, the maturation successful VNB stands astatine conscionable 3%. HDFC Life has historically commanded a precocious aggregate comparative to its VNB, justified by the beardown VNB maturation seen during the 3 years starring up to FY23.

Valuation metrics and stagnant growth

Another fashionable metric for valuing companies successful astir sectors, too the price-to-earnings ratio, is the price-to-book value. For a beingness security company, the publication worth is substituted by embedded value. Simply put, embedded worth is simply a full of adjusted publication worth and the contiguous worth of the aboriginal nett locked successful existing policies. Based connected FY24’s embedded worth of ₹47,470 crore, HDFC Life’s shares punctuation astatine a aggregate of 2.7x, which is not peculiarly inexpensive considering the adjacent standstill successful nett growth.

The merchandise premix astatine HDFC Life shows that the unit-linked security program (ULIP) accounted for 35% of full income successful FY24, up from 19% a twelvemonth ago. ULIPs connection investors the accidental to put successful communal funds portion purchasing beingness insurance. Although ULIPs are not the astir profitable conception for a beingness security company, their popularity is expanding arsenic a mode to enactment successful the ongoing bull signifier successful the banal market. 

Conversely, word security oregon axenic hazard sum products, which are highly profitable, contributed conscionable 5% of full policies sold. Despite the ongoing discussions astir debased beingness security penetration successful India, HDFC Life’s results should punctual investors to reassess manufacture maturation and the valuation of stocks earlier making concern decisions.

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