HDFC Life rallies 5%, hits record high ahead of board meet for fund raising

The board will meet on Friday, September 3, 2021 to consider issue of equity shares and / or other securities of the Company by way of preferential allotment

Shares of HDFC Life Insurance rallied 5 per cent to hit a fresh record high of Rs 758.50 on the BSE in the intra-day trade on Thursday ahead of a board meeting on Friday scheduled to consider fund raising plan. The stock of the private insurer surpassed its previous high of Rs 746, touched on March 9, 2021.

"A meeting of the board of directors of HDFC Life Insurance Company is proposed to be held on Friday, September 3, 2021 to consider issue of equity shares and / or other securities of the Company by way of preferential allotment," the company said in exchange filing on Tuesday, August 31, 2021.

In the past one month, the stock has outperformed the market by surging 13 per cent as compared to a 9 per cent rise in the S&P BSE Sensex. However, over the past six months, it has underperformed by gaining only 5 per cent, as against a 15 per cent rally in the benchmark index.

HDFC Life is a joint venture between HDFC Ltd., India’s leading housing finance institution, and Standard Life Aberdeen, a global investment company. HDFC Life is a leading long-term life insurance solutions provider in India, offering a range of individual and group insurance solutions that meet various customer needs such as protection, pension, savings, investment, annuity and health.

The current pandemic has led to higher awareness around the need for protection and the inadequacy of current insurance coverage at a household level. Life insurance has emerged as a prominent theme to protect one’s family whilst securing long-term financial goals.

The company’s management believes that life insurance in India is a structural long term growth opportunity given the under-penetration. "In addition, pandemic-induced awareness, shift in consumer behaviour and robust demographic trends indicate that we are well placed to capture these multi decade opportunities," the management had said in the financial year 2020-21 annual report.

"Meanwhile, in April-June (Q1FY22), HDFC Life saw a steep rise in death claims, with peak claims in the second Covid wave at around 3-4 times of peak claims in the first wave. The company cleared around 70,000 claims in Q1, with gross/net claims amounting to Rs 1,600 crore/Rs 960 crore. The company has created an additional reserve of about Rs 700 crore. However, near-term uncertainties persist," analysts at Emkay Global Financial Services said in result update.

HDFC Life continues to focus on the diversified distribution channel to create a balanced product mix for optimum profitability. Its balanced product mix provides cushion against business cyclicality while taking advantage of the underpenetrated protection market. Management avoids group protection plans due to the lack of profitable underwriting.

Emkay Global expects the trend in margins to remain stable with a balanced product mix and a gradual rise in the share of protection and annuity plans along with increasing penetration in deeper geographies. It maintains 'buy' rating on the stock with target price of Rs 870 per share.