HDFC Life hits 52-week high; up 3% as CCI permits HDFC to increase stake

The CCI in its meeting held on June 20, 2023, has granted its approval to HDFC to increase its stake in HDFC Life to more than 50 per cent.

Shares of HDFC Life Insurance Company hit a 52-week high of Rs 659.90, up 3 per cent on the BSE in Wednesday’s intra-day trade after the company said Competition Commission of India (CCI) granted an approval to HDFC for increasing stake in the company to more than 50 per cent.

The stock of HDFC group life insurance company was trading higher for the fourth straight day, surging 14 per cent during the period. In comparison, the S&P BSE Sensex was up 0.16 per cent at 63,426 at 10:52 AM.

“The CCI in its meeting held on June 20, 2023, has granted its approval to the proposed combination in terms of Section 31(1) of the Competition Act, 2002, for HDFC Limited to increase its stake in HDFC Life to more than 50 per cent,” HDFC Life said in an exchange filing.

Prior to this, Reserve Bank of India (RBI) advised that HDFC Bank or HDFC should increase stake in HDFC Life insurance and HDFC Ergo prior to effective date of the scheme.

Approval of CCI is positive for HDFC Bank as it is a step towards the merger of HDFC twins. For HDFC Life insurance, business growth and value of new business (VNB) margin trajectory should drive valuation, ICICI Securities said in a note.

Meanwhile, on May 31, 2023, Abrdn (Mauritius Holdings) 2006 Limited (abrdn), one of the promoters of HDFC Life, had undertaken a sale of 35.69 million equity shares (representing approximately 1.66 per cent of the total issued and paid‐up equity share capital of the Company) to various investors via block deals. abrdn had sold shares at an average price of Rs 570.60 per equity share (including brokerage and commission), HDFC Life said.

HDFC Life is among the most dominant players in the Indian life insurance industry with a strong distribution network, parentage, operating metrics. The company has an industry leading VNB margins of around 26-27 per cent.

In past one month, HDFC Life has outperformed the market by surging 18 per cent, as compared to 2.3 per cent rise in the S&P BSE Sensex.

HDFC Life’s share price has underperformed in the past three years. Focus is expected to shift towards protection and annuity business but sustainability of margins along with healthy premium growth needs to be watched. Approval regarding increase in stake by parent puts an end to overhang, analysts at ICICI Securities said.