Why HDFC Life Share Price is Rising

Back in February 2023, we wrote about why HDFC Life Insurance share price was falling after the budget 2023-24 was announced.

In this year's Union budget, the government lifted tax exemption on life insurance policies issued with an aggregate premium of over Rs 500,000 in a year, with effect from 1 April 2023. This was a nasty shock for life insurance companies.

Following the news, the life insurance industry suffered losses across a wide range of counters, with shares of life insurance companies falling up to 18%.

Among these companies, HDFC Life Insurance share price was affected badly, marking a two-year low on 2 February 2023.

However, it looks like the company is finally out of the woods. Last month, the company's stock price went up by 14.7%. Yesterday, the stock touched its 52-week high of Rs 672.3.

So, what suddenly changed for the company? Let's find out...

Why HDFC Life Share is Rising

#1 Healthy financial performance

For the financial year ended March 2023, the company reported a total premium income of Rs 567.6 billion (bn), up 25% on a YoY basis due to rising demand especially in the non-par and high-ticket size segment.

The net profit of the company stood at Rs 13.6 bn. It was up by 16.6% compared to last year on the back of volume growth.

HDFC Life FY23 Performance

Particulars	FY23	FY22
Total Premium Receipt (Rs in bn)	567.6	454
Profit after tax (Rs in bn)	13.6	12.1

Source: Company, Equitymaster

In terms of individual weighted received premium (WRP), HDFC Life outpaced the private industry, thereby consistently demonstrating growth.

The company's new business margin for the year was 27.6%, delivering value of new business of Rs 36.7 bn, which is a growth of 37% on YoY basis.

Its solvency ratio was 203% as on 31 March 2023. Renewal collection trends continued to be healthy on the back of steady persistency.

#2 Stake acquisition by HDFC

With the merger of HDFC Bank and HDFC nearing the finishing line, the parent company HDFC (Housing Development Finance Corporation), on Tuesday this week, increased its stake in the life insurance arm by 0.7%.

HDFC, on Tuesday, bought 15 million shares of HDFC Life Insurance, at an average price of Rs 667.1 per piece, valuing the deal at Rs 9.9 billion (bn), bulk deals data on stock exchanges showed.

HDFC purchased additional stake in the life insurance company to take the merger deal between HDFC Bank and HDFC one step closer. The company received approval for additional stake acquisition from Competition Commission of India (CCI) on 20 June 2023.

The merger between the two business behemoths will take effect from 1 July 2023, and the merged entity will have to hold at least 50% so the bank can show it as a subsidiary and consolidate its earnings. As of March 2023, HDFC's holding in HDFC Life Insurance stood at 48.6%.

When parent company acquires stake in a company, it boosts investor confidence. So it doesn't take a genius to figure out why HDFC Life share price is rising in recent days.

#3 Synergies due to the twin merger

The merger between HDFC and HDFC Bank is regarded as the largest transaction in India's corporate history. The merger was agreed upon on 4 April 2022.

The combined entity is expected to possess an asset base of approximately Rs 18 trillion (tn). Following the merger's implementation, HDFC Bank will be entirely owned by public shareholders, while the existing shareholders of HDFC will own 41% of the bank.

HDFC shareholders will receive 42 shares of HDFC Bank for every 25 shares of HDFC that they hold.

Both HDFC and HDFC bank are expected to benefit from the merger in the long term, as the combined entity will have a larger balance sheet, customer base, product portfolio and distribution network.

The merger will also improve the capital adequacy, asset quality and profitability of the merged entity.

The completion of the merger removes a major overhang and focus shifts to lender's ability to capitalize on growth in a robust credit environment for the sector.

Tailwinds for the parent company also translate into positive news for the subsidiary company.

How HDFC Life Insurance share price has performed recently

In the past one month, HDFC Life share price went up by 14.7%. On a YTD basis, it has gained 16.4%.

While in the past one year, it has rallied 17.6%.

HDFC Life shares touched a 52-week high of Rs 672.3 on 27 June 2023 and a 52-week low of Rs 457.9 on 16 March 2023.

About HDFC Life Insurance

HDFC Life Insurance is a leading private long-term life insurance solutions provider in India. It offers a range of individual and group insurance solutions that meet various customer needs, such as protection pension savings, investment annuity, and health insurance.

HDFC Life Insurance is formed as a joint venture between Housing Development Finance Corporation Limited (HDFC Limited) and Abrdn plc.

It offers a range of life insurance plans, such as term insurance plans, health insurance plans, child education plans, unit-linked insurance plans (ULIPs), savings, and investment plans. It also offers long-term savings, protection and retirement or pension products.

It operates in three segments: Participating (Par) segment products, including endowment, protection and pension plans; non-participating (Non-Par) segment products.

Exide Life Insurance Company Ltd is a subsidiary of the company.

To know more about the company, you can visit its factsheet and quarterly results.

You can also compare HDFC Life Insurance with its peers.

HDFC Life Insurance vs SBI Life Insurance

HDFC Life Insurance vs Life Insurance Corporation of India

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Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...