HDFC Life Q3 growth holds firm, margins set to recover; analysts bullish

HDFC Life Insurance’s December quarter (Q3FY26) performance may not have delivered headline-grabbing upside, but it has done enough to reassure brokerages on growth durability and margin recovery, keeping bullish calls intact despite near-term pressures from GST-related headwinds and competitive intensity.

 

The insurer reported an 11 per cent year-on-year (Y-o-Y) growth in annualised premium equivalent (APE) at ₹3,970 crore for Q3FY26, broadly in line with industry growth and analyst expectations. Value of new business (VNB) rose modestly, while margins dipped sequentially but remained within the guided range. Across brokerages (Emkay Global, Elara Capital and Motilal Oswal), the consensus view is that the quarter was operationally steady, with the underlying business momentum intact and scope for margin improvement over the coming quarters.

 

Protection, ULIPs drive growth; non-par, banca remain soft

A key positive highlighted by brokerages was the strong traction in protection and Unit-linked insurance plan (ULIP) products. Post the GST exemption, retail protection demand has seen a sharp pickup, while favourable equity markets continued to support ULIP sales. Motilal Oswal noted that ULIP, term and annuity businesses grew 43 per cent, 20 per cent and 11 per cent Y-o-Y respectively during the quarter, offsetting weakness in non-par savings. Emkay echoed this view, pointing out that GST tailwinds drove strong growth in ULIPs and retail protection, even as non-par products faced pressure from aggressive pricing in the bancassurance channel.

 

For the nine months ended December, HDFC Life delivered APE growth of about 11 per cent, while VNB margins stood at 24.4 per cent, largely flat Y-o-Y. Absolute VNB for Q3 came in at around ₹950-960 crore, broadly in line with estimates. Embedded value grew about 16 per cent Y-o-Y to nearly ₹61,600 crore, while operating return on embedded value stood at 15.6 per cent.  ALSO READ | Analysts continue to back HDFC AMC after strong Q3; expect steady growth

GST headwinds ease, margin recovery seen from Q4

Margins, however, remained a talking point. VNB margin declined to around 24 per cent in Q3 from over 26 per cent a year ago, largely due to GST input tax credit losses and higher expenses linked to investments in branch expansion, manpower additions and agency build-outs. Elara Capital described the quarter as ‘soft’ on margins, also flagging persistency-related operating variances that weighed on embedded value growth.

 

That said, brokerages believe the worst of the GST impact may be behind the company. Management has already reduced the annualised GST impact on margins to under 200 basis points (bps) in Q3, from an initial estimate of around 300 bps, after concluding negotiations with distributors. The company now expects this impact to narrow further to about 100 bps on an annualised basis in Q4, aided by operating leverage, a favourable product mix and higher-margin protection business. Both Emkay and Motilal Oswal expect margins to stabilise and gradually improve from here, while Elara sees VNB margins normalising to the mid-25 per cent range by FY27.  ALSO READ | L&T Technology Services slips 5% post Q3; most brokerages slash target

Valuations reasonable; brokerages retain ‘Buy’ on long-term outlook

Another area of focus for brokerages was the bancassurance channel. While HDFC Life’s bancassurance growth remained muted due to rising competition and open-architecture pricing pressures, management maintained that its wallet share within HDFC Bank remains stable. Elara noted that the company has consciously avoided aggressive pricing and lower-quality business in multi-insurer bancassurance, prioritising margin protection over near-term volume growth, a strategy that could weigh on topline growth in the short term but support long-term value creation.

 

At the same time, the company is stepping up investments in proprietary channels. The agency channel posted double-digit growth, with over 80,000 agents added during the first nine months of FY26 and the branch network crossing 700 outlets. Brokerages believe this deeper presence, particularly in tier-3 markets, should help diversify growth and offset near-term softness in bancassurance over time.

 

On valuations, brokerages remain constructive. Emkay retained its ‘Buy’ rating on HDFC Life Insurance stock with an unchanged December 2026 target price of ₹850, while Motilal Oswal reiterated ‘Buy’ with a revised target of ₹930, valuing the stock at around 2.3 times FY28 embedded value. Elara Capital upgraded the stock to ‘Buy’ from ‘Accumulate,’ maintaining its target price at ₹890, on the back of reasonable valuations after a period of range-bound stock performance.

 

That said, while HDFC Life’s Q3 numbers did not surprise on the upside, brokerages believe the insurer is well-placed to deliver steady growth, improve margins as GST headwinds fade, and compound value over the medium term, with acceleration in growth remaining the key trigger for a stock rerating.

   

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