HDFC Standard Life Insurance : HDFC Standard Life (HDFCSL) is one of India’s top three private sector life insurers

HDFC Standard Life

Initiating Coverage | Sector: Financials – Life Insurance

HDFC Standard Life Insurance

BSE Sensex

33,107

S&P CNX

10,215

CMP: INR290

TP: INR370 (+28%)

Buy

Another 'compounder'

Quality franchise; attractive valuations

HDFC Standard Life (HDFCSL) is one of India’s top three private sector life insurers and

offers a wide range of insurance products. It has strengthened its position in a highly

competitive industry and has a well-diversified business mix. HDFCSL has strong return

ratios (FY17 RoEV at 21%) and the highest new business margin (22% for FY17) among the

major private insurers, backed by its balanced product mix (47% ULIPs, 26% PAR, 27%

Non-Participating business in FY17), strong distribution network and lower operating

cost. HDFCSL has made significant investments in building its digital platform, which has

enabled it to improve customer satisfaction and attract new business. We estimate HDFC

SL to deliver RoEV of ~19% over FY17-20E and value it on 3.5x Mar-20E EV at INR370 per

share, which implies an upside of 28% from the issue price. Initiate coverage with BUY.



Stock info

Equity Shares (m)

MCap (INR b)

MCap (USD b)

Financial snapshot (INRb)

Y/E MARCH

FY18E FY19E

Net Premium

231.2 282.5

Total Income

331.7 398.3

Opex

27.5 33.7

Op. profit

292.5 350.6

Surplus/Deficit

10.9 12.7

PAT

9.5 10.8

New bus gr. %*

Renewal

11.9 16.9

Prem.gr. (%)

P/EV (X)

3.9

3.3

P/EPS(x)

61.5 54.0

*Un-weighted

Shareholding pattern (%)

Nov-17

Promoter

Others

81.0

19.0

2,009

582.6

8.9

FY20E

349.6

492.5

41.5

434.0

15.7

13.5

21.5

2.8

43.1



New business premium to grow at 25% CAGR over FY17-20E:

HDFC SL has

reported strong growth trends, which has enabled it to consistently rank

among India’s top three private insurers. We expect the company to deliver

25% CAGR in new business APE over FY17-20. This will be aided by aided by its

increasing bancassurance tie-ups, improvement in agency channel and higher

direct sales.

Diversified product mix, improving operating metrics to keep margins

buoyant:

HDFC SL has a balanced product mix between participating, non-

participating and ULIP products. It has steadily improved the share of high-

margin protection products to 26.4% as at Sep-17, which has helped it deliver

higher new business margins. Its diversified product portfolio and continued

improvement in operating metrics (persistency, productivity) will keep

margins/return ratios buoyant.

Strong distribution network; cost ratios to remain best-in-class:

HDFCSL

continues to benefit from the strong distribution network of its bancassurance

partners and has increased its bancassurance partner count to 125. This will

help widen its reach and support premium growth. HDFCSL maintains strong

control on cost ratios, aided by rising proportion of direct/online sales and

multiple technology initiatives.

Valuation:

We expect HDFC SL to further improve its new business margin to

23% by FY20E, while operating RoEV/RoEV should sustain at 21%/19%

respectively over FY17-20E. We value HDFC SL at 3.5x Mar-20E EV at INR370

per share (new business multiple of 28x), which implies an upside of 28% from

the issue price. HDFC SL’s strong new business margins, healthy return ratios

and stronger growth potential will enable it to trade at a premium to other

insurers. Initiate coverage with

BUY.

NBP

margin

19.9%

22.0%

22.3%

22.4%

22.7%

EVOP as

% of IEV

20.9%

21.0%

21.5%

21.3%

21.1%

RoEV

16.1%

21.1%

19.9%

19.0%

18.8%

RoE

28.5%

25.5%

22.7%

22.2%

23.8%

Dividend

9.0%

11.0%

12.5%

15.0%

17.5%

102.3

123.9

148.5

176.8

210.0

P/EV

5.7

4.7

3.9

3.3

2.8

EPS

4.1

4.5

4.7

5.4

6.7

P/EPS P/AUM

70.7

64.9

61.5

54.0

43.1

78.5%

63.5%

52.9%

44.0%

36.3%

Exhibit 1: HDFC Life: Key financials

Net

Surplus

Premiums /Deficit

FY16

161.8

9.6

FY17

192.7

9.5

FY18E

231.2

10.9

FY19E

282.5

12.7

FY20E

349.6

15.7

INRb

PAT

8.2

8.9

9.5

10.8

13.5

VNB

7.4

9.1

11.4

14.8

18.3

17 November 2017

HDFC Standard Life

Exhibit 2: Snapshot of major insurers

HDFC Life

FY16

FY17

Profit and Loss matrix (INR m)

Operating Profit

Surplus / Deficit

PAT (Shareholder's a/c)

Premium (INR m) & growth (%)

New business prem – wrp

Total premium – unwtd

Market share

New business growth – wrp

Total prem growth – unwtd

New business mix – wrp (%)

Participating

Non-participating

ULIPs

Operating ratios (%)

Investment yield (%)

Commissions / GWP

Total expense ratio

Solvency margin

Persistency ratios (%)

13th Month

25th Month

49th Month

61st Month

Valuation ratios and other data points

NBP margin (%)

RoE (%)

RoIC (%)

Total AUMs, INRb

RoEV (%)

Operating RoEV (%)

Dividend (%)

Dividend payout ratio (%)

EPS, INR

Embedded Value, INRb

P/E (x)

P/EV(x)

P/AUM

VIF as a % of AUM

154,644

9,597

8,183

36,156

64,872

4.7%

13.5%

18.1%

26.8%

20.5%

52.8%

2.5%

4.3%

15.8%

198.4%

79.0%

67.0%

63.0%

50.0%

19.9%

28.5%

37.8%

742

16.1%

20.9%

9.0%

26.4%

4.1

102.3

70.7

5.7

79%

68%

273,421

9,476

8,921

40,852

86,964

5.0%

13.0%

34.1%

25.9%

27.4%

46.7%

12.6%

4.1%

16.3%

191.6%

81.0%

73.0%

58.0%

57.0%

22.0%

25.5%

41.0%

917

21.1%

21.0%

11.0%

29.6%

4.5

123.9

64.9

4.7

64%

67%

ICICI Life

FY16

FY17

177,018

14,124

16,505

51,085

67,658

4.9%

9.9%

26.9%

11.4%

13.6%

75.1%

1.2%

3.2%

13.1%

320.0%

82.4%

71.2%

62.2%

46.0%

8.0%

31.2%

34.3%

1,039

0.8%

15.3%

84.0%

87.7%

11.5

139.4

33.0

3.9

52%

60%

340,640

11,527

16,822

64,862

77,604

4.5%

27.0%

14.7%

11.7%

13.6%

74.8%

13.0%

3.4%

13.9%

3.4%

85.7%

73.9%

59.3%

56.2%

10.1%

28.7%

34.8%

1,229

16.1%

16.5%

73.5%

39.5%

11.7

161.8

32.4

3.4

44%

58%

Max India

FY16

FY17

83,708

4,632

4,391

21,627

28,817

2.1%

8.7%

12.0%

62.6%

13.0%

24.4%

4.2%

8.9%

22.5%

343.0%

78.8%

66.6%

55.6%

42.7%

17.9%

21.5%

22.1%

364

6.9%

17.0%

136.6%

100.0%

11.5

56.2

48.1

3.8

41%

63%

115,546

-1,721

6,599

27,485

36,664

2.1%

27.1%

27.2%

61.4%

13.7%

24.9%

9.1%

8.7%

23.4%

309.0%

80.4%

70.4%

54.9%

53.0%

18.8%

29.1%

33.2%

444

16.6%

19.9%

52.5%

25.5%

17.3

67.4

32.0

3.2

34%

62%

SBI Life

FY16

FY17

169,482

6,642

8,610

48,781

71,066

5.1%

37.4%

28.5%

27.7%

28.7%

43.6%

4.6%

4.5%

13.7%

212.0%

80.0%

72.1%

77.2%

50.6%

16.0%

19.6%

86.1%

798

19.0%

12.0%

16.8%

8.6

130.0

75.5

5.0

81%

277,959

6,543

9,547

66,009

101,439

5.8%

35.3%

42.7%

22.9%

29.3%

47.8%

10.2%

3.7%

11.6%

204.0%

80.6%

73.0%

65.0%

68.1%

15.4%

18.6%

95.5%

977

21.4%

23.0%

15.0%

18.9%

9.5

165.4

68.1

3.9

67%

58%

Source: Company, MOSL

17 November 2017

HDFC Standard Life

India Life Insurance: Growth comes back full circle

The insurance industry in India has staged a smart recovery over the last three years

after multiple regulatory actions had significantly impacted insurer’s business

operations. The industry has now aligned itself with the revised regulations, with

improved product portfolio, strong cost control and multiple productivity

improvement initiatives. Reforms to boost tax compliance, promote digital

transactions and curb black money have further catalyzed the industry’s growth.

Having successfully navigated through the turbulence, we believe the sector has

emerged stronger and insurers are now underwriting better quality business, which

will boost profitability in the medium term. During FY18YTD, private players have

reported strong 22% growth in new business APE (14% growth in un-weighted

premiums) and we expect the industry to grow at 17% CAGR over the next three

years. This will be led by rising share of financial savings, benign rate environment,

favorable demographics, and increasing customer awareness. Healthy GDP growth

and stable regulatory regime will act as further enablers for the industry’s growth.

Exhibit 3: Trend in new business growth – APE terms

Strong industry

growth led by ULIP

sales

Sharp decline in

equity markets

impacted industry's

growth

Regulatory

intervention

prolonged

industry's

slowdown

Industry returned to

normalcy with avg.

growth of ~18% over

FY15-18 YTD led by

private players

50%

30%

10%

-10%

-30%

Private players

LIC

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

YTD

Source: Company, MOSL

The profitability of the insurers is also likely to increase, as improving operating

metrics (persistency and product mix) and strong cost control help expand margins.

We expect large bancassurers to gain market share owing to their better distribution

reach and stronger operating models. The share of the agency channel in overall

business sourcing for select large insurers like HDFCSL is also likely to improve

gradually.

Exhibit 4: Industry’s total new business premium – APE terms

Private players

LIC

271

159

293

216

309

283

348

410

441

347

228

374

217

286

250

311

285

360

171

162

288

237

348

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 5: Latest new business premium figures for the industry, APE - INR mn

Life Insurer

Industry Total

LIC

Total Private

ICICI Prudential

SBI Life

HDFC Life

Max Life

Kotak Life

Bajaj Allianz

Birla Sunlife

Tata AIA

PNB Met Life

Canara HSBC OBC

Reliance Life

Exide Life

IndiaFirst Life

DLF Pramerica

Shriram Life

Star Union Dai-ichi

IDBI Federal Life

Future Generali

Bharti Axa Life

Aviva Life

Edelweiss Tokio

Aegon Religare

Sahara Life

Oct- 17

59,379

31,892

27,487

5,873

6,252

3,733

1,807

1,508

1,500

743

922

795

428

510

465

428

567

316

306

350

268

322

139

161

Y-Y

Growth (%)

28.7%

37.7%

19.5%

29.5%

44.7%

25.0%

13.2%

70.2%

-14.4%

-66.7%

62.6%

14.5%

27.6%

2.5%

48.9%

2.0%

181.4%

15.4%

40.8%

32.4%

1.6%

3.5%

-12.5%

32.5%

120.8%

-100.0%

M-M

Growth (%)

-14.0%

-5.7%

-22.0%

-12.5%

-11.0%

-26.6%

-35.6%

-21.0%

-26.9%

-36.2%

-19.9%

-32.2%

-54.0%

-33.0%

-26.9%

-12.9%

0.3%

-27.8%

-48.2%

-18.8%

-38.1%

-11.0%

-32.7%

0.0%

-8.1%

-100.0%

FY18 YTD

392,287

202,852

189,435

43,125

39,304

24,175

13,258

9,823

9,520

5,997

5,963

5,725

4,346

4,145

3,398

2,997

2,967

2,601

2,527

2,393

2,314

1,938

1,299

1,024

578

YTD

Growth (%)

17.1%

13.1%

21.7%

44.7%

38.5%

36.8%

16.9%

10.7%

-1.7%

-55.7%

37.5%

18.3%

79.8%

-20.3%

2.1%

31.3%

156.1%

4.4%

-6.6%

41.9%

21.4%

-3.0%

51.0%

29.0%

76.1%

-68.4%

FY17

7,09,040

3,60,376

3,48,664

64,966

66,028

40,851

21,302

27,495

21,592

10,755

24,721

9,667

11,270

5,285

6,598

4,341

6,513

2,468

4,831

3,749

4,098

6,780

1,936

2,369

893

155

Y-Y

Growth (%)

18.8%

15.8%

22.1%

27.2%

35.4%

13.0%

38.1%

27.2%

26.8%

11.6%

13.5%

-33.7%

55.2%

53.3%

15.6%

28.4%

35.7%

6.2%

6.5%

50.1%

8.8%

20.3%

26.2%

-24.3%

-33.4%

2.1%

Source: Company, MOSL

Exhibit 6: Market share trend in new business APE for private players and LIC

Private players

65%

52%

59%

55%

59%

60%

63%

53%

52%

51%

49%

51%

49%

LIC

48%

41%

FY08

FY09

45%

47%

41%

FY11

35%

FY12

40%

FY13

37%

FY14

FY15

48%

FY10

FY16

FY17

FY18

YTD

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 7: Trend in individual new business market share for private players and LIC

Private

63%

57%

50%

43%

37%

FY08

FY09

FY10

FY11

FY12

52%

48%

46%

54%

51%

38%

FY13

35%

FY14

FY15

FY16

FY17 FY18 YTD

Source: Company, MOSL

62%

LIC

65%

49%

52%

48%

54%

56%

46%

44%

Exhibit 8: Market share trend in new business APE for private players

Insurer

ICICI Prulife

SBI Life

HDFC Life

Birla Sunlife

Max Life

Kotak Life

Bajaj Allianz

Reliance Life

PNB Met Life

Tata AIA

Exide Life

Star Union Dai-ichi

Canara HSBC OBC

Shriram Life

Bharti Axa Life

FY07

10.6%

4.2%

3.1%

1.9%

1.8%

1.3%

7.4%

1.7%

0.8%

1.3%

1.0%

FY08

13.7%

6.2%

4.1%

3.4%

2.4%

1.9%

10.3%

3.4%

1.4%

1.5%

1.2%

FY09

12.2%

8.9%

4.5%

5.3%

3.1%

2.5%

7.7%

5.8%

2.0%

2.1%

1.2%

0.1%

0.6%

0.4%

0.5%

FY10

9.6%

10.1%

4.4%

4.6%

2.6%

1.8%

5.9%

5.8%

1.6%

2.0%

1.0%

0.4%

1.0%

0.5%

0.6%

FY11

8.4%

5.4%

4.9%

2.9%

2.6%

1.3%

3.5%

3.4%

0.8%

1.6%

0.9%

0.6%

1.2%

0.3%

0.5%

FY12

6.4%

3.9%

4.6%

2.7%

2.4%

1.0%

2.9%

2.2%

1.1%

0.9%

0.7%

1.0%

0.3%

FY13

7.4%

5.0%

5.6%

3.2%

2.7%

1.4%

3.6%

2.1%

1.2%

0.7%

0.9%

0.7%

1.0%

0.4%

FY14

5.6%

5.4%

4.3%

2.8%

3.1%

1.4%

2.9%

3.1%

1.1%

0.6%

0.8%

1.0%

0.4%

0.5%

FY15

8.7%

6.6%

5.9%

3.6%

3.7%

2.1%

3.0%

3.7%

1.5%

0.6%

0.8%

1.0%

0.7%

0.6%

0.7%

FY16

8.6%

8.2%

6.1%

3.7%

3.6%

2.9%

2.6%

2.4%

1.6%

1.2%

1.0%

0.9%

0.8%

0.6%

FY17 FY18 YTD

9.2%

11.2%

9.3%

9.9%

5.8%

6.1%

3.5%

1.6%

3.9%

3.4%

3.0%

2.5%

3.0%

2.4%

1.4%

1.5%

1.6%

0.9%

0.7%

0.6%

1.1%

1.5%

0.9%

0.7%

1.2%

0.7%

0.5%

0.2%

0.0%

0.3%

0.2%

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Insurance and Mutual Fund – driving the growth in

financial savings

India’s gross savings rate has declined over the past few years, impacted by a

sluggish macroeconomic environment and high inflation rate, which moved savers

away from financial assets. However, with inflation in control, government impetus

towards increasing formalization of the economy and subdued returns from physical

assets, the share of financial savings has begun to increase. While the share of

financial savings has been increasing over the past few years, the composition of

insurance sector has further increased by ~25% over FY14-16 and we expect this to

continue. We expect the share of net household financial savings to increase from

7.8% of GNDI in FY16 to 10% over the next few years while the gross savings rate

also recovers in the medium term (average of ~32% over past few years).

Exhibit 9: Gross Savings as a percentage of Gross National Disposable Income (GNDI)

Item

Gross Savings

Non-financial Corporations

Public non-financial corporations

Private non-financial corporations

Financial Corporations

Public financial corporations

Private financial corporations

General Government

Household sector

Net financial saving

Saving in physical assets

Saving in the form of valuables

FY10

33.7

9.2

1.3

7.9

2.2

1.5

0.5

-3.1

25.2

13.2

FY11

33.7

8.8

1.2

7.6

2.3

1.7

0.6

-0.5

23.1

9.9

13.2

FY12

33.8

9.5

1.4

8.1

1.9

1.2

1.8

7.2

15.5

0.4

FY13

9.7

1.2

8.5

1.7

1.2

-1.6

21.9

7.2

14.4

0.4

FY14

32.3

10.6

1.1

9.4

2.6

1.4

1.1

-1.3

20.5

7.5

12.7

0.3

FY15

32.3

0.9

11.1

2.6

1.3

-1

18.7

7.5

10.8

0.3

FY16

31.7

11.8

1.0

10.8

2.1

1.3

0.8

-1.0

18.8

7.8

10.7

0.3

Source: Company, MOSL

Exhibit 10: Financial savings of household as % of Gross National Disposable Income (GNDI)

Item

A. Gross financial savings

Currency

Deposits

Shares and debentures

Claims on government

Insurance funds

Provident and pension funds

B. Financial liabilities

C. Net financial saving ( A-B )

FY12

10.4

1.2

6.0

0.2

-0.2

2.2

1.1

3.2

7.2

FY13

10.5

1.1

6.0

0.2

-0.1

1.8

1.5

3.2

7.2

FY14

10.4

0.9

5.8

0.2

1.8

1.5

3.1

7.2

FY15

10.1

1.1

5.0

0.2

0.0

2.4

1.5

2.9

7.2

FY16

10.9

1.4

4.8

0.3

0.5

1.9

2.0

3.1

7.8

FY17

11.8

-2.1

7.3

1.2

0.5

2.9

1.9

3.7

8.1

Source: Company, MOSL

Within financial savings, we expect the share of insurance to increase, as a benign

rate environment keep savers away from fixed deposits and increases the

attractiveness of life insurance products for savings/protection. Moreover, with

expectations of recovery in GDP growth and continued buoyancy in capital markets,

ULIPs will continue to do well and dominate the bouquet of insurance products. We

expect the life insurance industry to grow at a CAGR of ~17% over the medium term,

led by large private players that have strong bancassurance tie-ups, robust

technology platform, and healthy product profile.

17 November 2017

HDFC Standard Life

Exhibit 11: Contribution of insurance funds to change in household financial assets (%)

Contribution of insurance funds to change in financial assets (%)

26.2%

22.0% 21.0%

15.2% 14.3% 15.0%

19.5%

21.0%

16.9% 17.2%

23.3%

17.6%

24.2%

13.4%

Source: Company, MOSL

Exhibit 12: Trend in composition of change in household financial assets (%)

Year

FY12

FY13

FY14

FY15

FY16

FY17

Currency

11.4%

10.5%

8.4%

10.4%

13.2%

-17.4%

Bank

deposits

56.4%

54.0%

53.7%

47.0%

41.1%

60.2%

Non-banking

deposits

1.1%

2.6%

1.9%

2.6%

2.4%

1.9%

Life

Provident &

insurance

Pension fund

Fund

21.0%

10.3%

16.9%

14.7%

17.2%

14.9%

23.3%

14.7%

17.6%

18.3%

24.2%

16.3%

Claims on

Govt.

-2.3%

-0.7%

1.9%

0.1%

4.4%

4.6%

Shares &

Debentures

1.8%

1.6%

1.5%

2.7%

10.0%

Others

0.5%

0.3%

0.4%

0.3%

0.2%

Total change

100%

Source: Company, MOSL

Mutual Fund AUMs as % of deposits

MF AUMs as % of system deposits

19.7

16.2

9.9

10.4

10.7

12.7

Exhibit 13: Mutual Fund & Insurance AUMs as % of GDP

Insurance AUMs as & of GDP

7.1

7.3

MF AUMs as % of GDP

8.7

6.7

9.0

1.8

1.7

1.8

Source: Company, MOSL

17 November 2017

HDFC Standard Life

China has shown strong progress in premium growth –

How much can India replicate?

Insurance penetration in India declined from a peak of 4.6% in FY09 to 2.5% in FY13

and recovered marginally to 2.7% in FY16. Bulk of the decline happened during the

years of major regulatory changes, which necessitated significant effort on the part

of the insurers to adapt. Several products (predominantly ULIPs) were rendered

ineligible and insurers had to re-design them to comply with the new regulations,

resulting in a sharp decline in product offerings. With improving product offerings

and macro drivers, we expect insurance penetration in India to increase over the

next few years.

Exhibit 14: India: Insurance penetration and density trend

$60

$45

$30

$15

Density (USD)

Penetration (%) - RHS

Source: SwissRe, MOSL

Exhibit 15: Trend in life insurance premium volume for China & India in US$

China - Life insurance premium volume

India - Life insurance premium volume

262,616

210,763

141,208

53,300

152,121

52,174

176,950

55,299

56,675

61,817

FY12

FY13

FY14

FY15

FY16

Source: SwissRe, MOSL

We note that while the advanced economies are reporting muted trends in

premium growth, China has reported very strong growth in total premium

collections over past few years. Its share in world life insurance market has thus

grown by 420bp between FY13-16 to 10% while India has reported modest 40bp

gain over the similar period.

17 November 2017

HDFC Standard Life

Exhibit 16: Market share in world life insurance for India &

China

India

China

8.3

5.39

2.03

5.8

6.7

103

2.4

42.7

110

10.0

Exhibit 17: Trend in Insurance density for China & India

China

127

India

153.1

189.9

2.0

2.1

2.2

43.2

46.5

FY12

FY13

FY14

FY15

FY16

FY12

FY13

FY14

FY15

FY16

Source: SwissRe, MOSL

We believe that India’s strong economic growth, rising share of financial

savings/disposable income and huge protection gap will enable healthy growth

trajectory over next few years. The larger private insurers are thus well positioned

to capitalize on this strong opportunity and are likely to deliver healthy double digit

growth rate in premiums and gain further market share.

Exhibit 18: Individual Sum assured to GDP for India (%)

Source: Company, MOSL

Insurance density has been stagnant for a while; expect it to recover with pick-up

in financial savings

India’s current insurance density (measured as insurance premium per capita) at

USD43 is nearly 21% lower than the peak of USD55.7 in FY10. It declined

consistently over FY11-13, the period that witnessed intense regulatory action

coupled with weak economic environment. However, there has been a mild

recovery during FY13-15 and we expect it to pick up pace as the financial savings

rate improves and India maintains its medium-term GDP growth rate of 7-8%.

Regionally, we see that insurance density in India is significantly below China

(USD190) and other emerging countries. China has reported ~17% CAGR increase in

insurance density over FY12-16.

One could argue that insurance penetration in India is not very low when compared

to developed countries, but we note that developed countries have (i) healthy social

security benefits for their citizens, and (ii) in many such countries, life insurance and

pension savings are held separately – the latter do not get counted in insurance

sales.

17 November 2017

HDFC Standard Life

We believe it is more relevant to compare insurance density in India with other

Asian/regional peers and emerging countries. We note that the dynamics in the

Indian insurance industry are similar to Taiwan, Korea and South Africa – these

countries also offer tax incentives on insurance premium, though the extent of

benefits varies. Insurance penetration in these countries is higher and this points to

strong growth potential in the Indian insurance industry.

Exhibit 19: Insurance penetration and density in developed

countries – FY16

4,000

3,000

2,000

1,000

Penetration as % of GDP

United

States

Australia

Germany

Switzerland

Singapore

United

Kingdom

Japan

France

Exhibit 20: Insurance penetration and density in Asia & other

emerging countries – FY16

350

280

210

140

Russia

Philippines

Pakistan

Penetration as % of GDP

Brazil

PR China

Malaysia

Thailand

India

Source: Company, MOSL

Exhibit 21: India has the highest gap in protection

requirement amongst key Asian countries (%)

Exhibit 22: India's mortality protection gap ($ bn)

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Reduced mis-selling and focused efforts to boost persistency are

yielding results; we expect trend to continue

Insurance industry’s operating metrics has improved over past few years aided by

improved product designing, reduced mis-selling and strong control on operating

costs. Thus, persistency trend (most important operating metric to assess the

performance of the insurance company) has shown an improvement for most

insurers. It is significantly more important for ULIP products as by regulation insurers

have to even out their expenses over the life of the ULIP policies while the business

may not stay with them for the entire term. The insurers thus offsets the front

loaded expenses incurred in new business acquisition by miscellaneous charges

(Fund Management Charge, Policy Administration Charge etc.) over the life of the

policy which makes persistency very important. Participating products however are

least sensitive to persistency given that shareholders participate in only 10% of the

surplus and surrender penalties are generally high.

Exhibit 23: ULIP regulations: Minimum sum assured was raised to 10x of annual premiums

Type of Products

Single premium

Life regular premium

Health regular premium

Age at entry below 45 years

Age at entry of 45 years and above

•

125%

10 times the annualised premiums or (0.5xT x

annualized premium) whichever is higher.

5 times the annualised premium or Rs.100,000

per annum whichever is higher.

•

110%

7 times the annualised premiums or (0.25xTx

annualized premium) whichever is higher.

5 times the annualised premium or Rs.100,000

per annum whichever is higher.

Source: Company, MOSL

IRDA revised ULIP regulations in 2010 and mandated lower surrender charges /

commissions on ULIPs and increased the lock-in period from three to five years. This

coupled with subdued equity markets resulted in a sharp rise in surrenders and

impacted persistency adversely. However, improved product features, controlled

misselling and decline in surrender rate of ULIPs have aided a steady improvement

in persistency rate over the past few years. Shorter-end persistency (13th month to

37th month) has improved sharply for several insurers and we expect the trickle-

down benefits to improve trends at the longer end (61st month).

Exhibit 24: Trend in persistency for major insurers 13 , 25 and 61 month —

HDFC life

80.9%

87.0%

80.6%

ICICI PruLife

80.4%

56.8%

68.1%

55.6%

53.0%

SBI life

Max life

13th mth

61th mth

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 25: Persistency rate of major insurers as on 2QFY18

13th Month

37th Month

49th Month

61st Month

HDFC Life

Max India

ICICI PruLife

Bajaj Allianz

Birla Sunlife

Source: Company, MOSL

ULIP/traditional products have been made much more competitive

ULIP/traditional products have become more competitive, with the IRDA

significantly reducing the surrender charges and specifying the maximum gap

between gross and net yields for ULIPs. However, this also implies that cost

management has become much more important for the insurers. As such, insurance

distribution via the banking channel has gained importance owing to its lower

distribution and sourcing cost.

Exhibit 26: ULIP – gross and net yields

Annualized

Premiums Paid

11 & 12

13 & 14

15 & thereafter

Maximum difference between Gross

and Net Yield (% p.a.)

4.00%

3.75%

3.50%

3.30%

3.15%

3.00%

2.75%

2.50%

2.25%

Source: Company, MOSL

Exhibit 27: Surrender charges on traditional products

Premium payment term

Less than 10 yrs

10 yrs or more

Consecutively paid for:

2 years

3 years

Single premium policy

Year of Surrender

Minimum surrender value

3rd year

70% of total premiums

4th year

90% of total premiums

Last 2 yrs (if policy term is less than 7 yrs)

90% of total premiums

Regular premium policy

Year of Surrender

Minimum surrender value

2nd & 3rd yr

30% of total premiums

4th - 7th yr

50% of total premiums

Last 2 yrs (if policy term is less than 7 yrs)

90% of total premiums

Reduce any survival benefits paid earlier to arrive

at the minimum surrender value

Source: Company, MOSL

17 November 2017

HDFC Standard Life

With improvement in persistency rate, renewal premium growth has begun to

improve, contributing to the build-up of policy reserves, and hence, value in force.

Exhibit 28: Trend in renewal premium growth for major insurers

90%

60%

30%

-30%

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

HDFC Life

SBI life

ICICI Pru

Max

Commission structure has also been designed to boost persistency

In December 2016, IRDA made further changes in the commission structure to bring

more consistency into the commissions paid on regular-premium insurance

products. Commissions were capped at 2% of the premium on single-premium

products, and at 15% in the first year and 7.5% thereafter on regular insurance

products with a premium paying term of at least five years. In case of pension

products, the commission was capped at 2% on single-premium products, and at

7.5% in the first year and 2% thereafter on regular products. With these changes,

the IRDA has adequately incentivized agents / distributors, and has ensured that the

right product gets sold to the customers.

Exhibit 29: Commission structure for regular premium based insurance products linked and

non-linked

Premium Payment

term

Maximum Commission as % of premium

1st year

12 & more

33/30

35/30

New

2nd & 3rd Subsequent

year

years

7.5/5

1st year

Old

2nd & 3rd Subsequent

year

years

7.5/5

Source: Company, MOSL

Maximum

17 November 2017

HDFC Standard Life

Exhibit 30: Commission expense across different channels for major insurers

10.0%

8.0%

6.0%

4.0%

2.0%

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

HDFC Life

SBI life

ICICI Pru

Max

Cap on total expense will ensure further discipline in operations

The IRDA also implemented an expense cap on insurers based on their years of

operation. For insurance companies in operation for over 10 years, the expense cap

is 80% of first-year premium and 15% of renewal premium. However, for players in

operation for less than 10 years, the expense cap is higher at 90% of first-year

premium and 20% of renewal premium due to high costs involved in the first few

years of operation.

17 November 2017

HDFC Standard Life

Regional comparison of persistency trend – further room for improvement exists !

The persistency ratio of Indian companies is still below their Asian peers. Bulk of

their new business was led by ULIPs, which are more savings oriented. With a slew

of regulatory changes and volatile equity markets over 2010-14, the surrender/lapse

rate spiked, resulting in a sharp drop in persistency rate. However, with the change

in product structure, curb on mis-selling and buoyant equity markets, the 13-month

persistency rate has improved for most insurers. We expect persistency rate to

improve further, as quality of business improves and customers begin to see

insurance as a protection-cum-savings product rather than just a play on capital

markets.

Exhibit 31: 13-month persistency comparison of Indian vs Asian insurers - FY17

FY16

FY17

85.7

90.9 91.4

90.0 90.2

90.3

92.3

79.0

81.0

80.0 80.6

82.4

HDFC Life

SBI life

ICICI

Prudential

Ping AN

insurance

China Life

Insurance

China Pacific

Insurance

Group

Source: Company, MOSL

Exhibit 32: 25-month persistency comparison of Indian vs Asian insurers – FY17

FY16

67.0

FY17

73.0

72.1 73.0

71.2 73.9

86.5 86.4

85.5 85.9

85.6 86.6

HDFC Life

SBI life

ICICI Prudential

Ping AN

insurance

China Life

Insurance

China Pacific

Insurance Group

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Bancassurance – the key distribution edge; however no

longer the cheapest channel

Insurance companies promoted by banks (ICICI Prudential Life, SBI Life) or those

having strong bancassurance tie-ups (HDFC Life, Max Life) have consistently gained

market share and reported strong improvement in operating costs. Multiple

changes in regulations have impacted the economics of the agency channel, forcing

several agents to move away from the industry. The bancassurance channel

provides unmatched distribution to the insurers and has been the key growth driver

for the larger players.

Bancassurance accounts for

58%, 65%, 61% and 62% of

total premium for ICICI

Prulife, SBI Life, HDFC Life

and Max Life

Exhibit 33: Private insurers: premium composition through different channels -

Individual agents

Corporate agents -Others

15%

61%

15%

HDFC Life

34%

SBI life

Brokers

Micro agents

Corporate agents-Banks

Direct business

12%

58%

24%

ICICI Pru

10%

62%

25%

Max life

Source: Company, MOSL

65%

However, bancassurance is no longer the cheapest channel for insurers, as banks

now have an option to tie-up with more than one insurer and are bargaining hard

for higher share of commissions. Insurers are investing significant efforts to

strengthen their direct sales channel and technological capabilities to maintain

strong control on their cost ratios.

Exhibit 34: Cost of bancassurance channel as proportion of new business APE for major

insurers (%)

60%

50%

40%

30%

20%

10%

HDFC Life

SBI life

ICICI Pru

Max

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 35: List of insurance companies and their key bancassurance partners

Insurer

ICICI Prudential

HDFC Life

Kotak Life

Canara HSBC OBC

Aviva

India First

SBI Life

Bajaj Allianz

IDBI Federal Life

Max Life

Birla Sunlife

PNB Met Life

Tata AIA

Bancassurance Partners

Standard Chartered Bank, ICICI Bank

HDFC Bank, Saraswat Bank, Ratnakar Bank, IDFC Bank

Kotak Bank, DNS Bank

Canara Bank, HSBC, Oriental Bank of Commerce

RBS, Punjab and Sind Bank

Bank of Baroda, Andhra Bank

SBI, BNP Paribas Cardiff

Dhanlaxmi Bank, ujjivan

IDBI Bank, Federal Bank

Axis Bank, Laxmi Vilas Bank, Yes Bank

Deutsche Bank AG, DCB Bank

Punjab National Bank(PNB), J&K Bank, Karnataka Bank

Citibank, IndusInd Bank, DBS

Source: Company, MOSL

17 November 2017

HDFC Standard Life

New business margins have been on an up curve; expect selective

improvement here on

The new business margins for larger players have improved over the past few years,

led by continued improvement in persistency rate, strong cost control and better

product mix. Currently, margins are at 12-14% on participating products, 10-14% on

ULIPs, and >30% on non-participating products (>50% on protection products).

New business margins are the highest for HDFC Life (at 22%; 350bp improvement

over two years) and Max Life (at 18.8%; 90bp improvement in one year), aided by

higher share of non-linked business. While ICICI PruLife stands relatively lower on

the margin curve, it has shown 370bp improvement since Mar-16, led by strong

growth in protection business, improving persistency and continued cost control.

Exhibit 36: Trend in new business margins for major insurers

30%

23%

15%

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

HDFC Life

SBI life

ICICI Pru

Max

Exhibit 37: Share of ULIP in total premium mix for major insurers

HDFC Life

100%

80%

60%

40%

20%

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

SBI life

ICICI Pru

Max

Exhibit 38: Product types and characteristics

Product characteristics

Participating

Non-participating

ULIPs

Protection / Term plans

Capital

Consumption

High

Medium

Low

Low to Medium

Regulatory

Risk

High

Low

Market

Risk

Medium

High

Low

NIL

Ease of

Selling

Medium

High

Low

Reinvestment Product Cost

Savings or Protection

Risk

Structure

Low

High

Low

NIL

Medium

High

Low

Savings

Protection + small savings

Savings + Small protection

Pure protection

Source: Company, MOSL

17 November 2017

HDFC Standard Life

We expect share of protection business to pick up, as customers become aware of

the true benefits of insurance. Significant decline in mortality charges has already

made the protection business much more attractive. This would drive margin

expansion for most players over the next few years.

Exhibit 39: Regional comparison of NBAP margins: NBAP margins are lower in India than

other countries

FY16

FY17

Note: For Chinese insurance companies, data is as of December ending 2015 & December 2016

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Balanced product mix is key to sustainable profit growth

We believe that a life insurance company should have a balanced mix of

participating, non-participating and unit-linked products, with participating products

forming the core. Non-participating products help boost profitability due to their

inherently higher margins. ULIPs are easier to sell due to their higher medium-term

return potential, despite being cyclical in nature. Participating products help provide

stability amidst periods of equity market volatility and through interest rate cycles.

Exhibit 40: Product mix comparison of large private insurers

Participating

Non-participating

Unit Linked

47%

48%

75%

27%

26%

HDFC Life

29%

23%

SBI life

14%

12%

ICICI Pru

Source: Company, MOSL

Diversified product mix also minimizes the impact that an insurer might face due to

regulatory changes. In the past, we have seen significant changes in the structuring

of ULIPs, lower surrender charges on traditional products, ban on NAV guaranteed

products, etc.

Amongst the top private insurers, we believe that HDFC Life and SBI Life followed by

Max Life have the most diversified and balanced product mix, which will help them

deliver steady growth and profitability across equity market / interest rate cycles.

On the other hand, ICICI PruLife, being ULIP-dominated, may witness growth and

profitability pressures if the equity markets are subdued for an extended period of

time; lower margins in ULIPs will anyway keep profitability lower than peers.

Product innovation will drive market share gains and boost profitability

In a highly competitive market with more than twenty four life insurers present,

product innovation will play an important role in driving healthy business growth

and stronger profitability for the insurers. Insurers need to be responsive to the

needs of a wide variety of Indian customers and introduce products that address

these specific requirements. This requires high level of innovation at the insurers’

end and right level of marketing to ensure the products’ success. Such a strategy will

also enable insurers to gain customer mindshare and cross sell other basic insurance

products. Recently, few large private insurers (HDFC Life and ICICI PruLife) have

launched a variety of term insurance with (i) critical illness cover, (ii) savings and

investment option, and, (iii) added riders of accident and disability benefits, to

capitalize on the rapidly growing protection market.

17 November 2017

HDFC Standard Life

HDFC Life has recently launched

Cancer Care

and

HDFC Life Group Health Shield,

and

has received approval for one other non-participating protection product,

HDFC Life

Cardiac Care,

which it plans to launch during FY18.

Exhibit 41: Product offerings of life insurers

Name of the Insurer

Aegon Life Insurance Company Limited

Aviva Life Insurance Company Limited

Bajaj Allianz Life Insurance Company Limited

Bharti Axa Life Insurance Company Limited

Birla Sun Life Insurance Company Limited

Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited

Future General India Life Insurance Company Limited

HDFC Life Insurance Company Limited

ICICI Prudential Life Insurance Company Limited

Kotak Mahindra Old Mutual Life Insurance Company Limited

Max Life Insurance Company Limited

Reliance Nippon Life Insurance Company Limited

SBI Life Insurance Company Limited

TATA AIA Life Insurance Company Limited

PRIVATE

Life Insurance Corporation Of India

TOTAL

Individual

Sep-2017

537

564

Group

Sep-2017

176

188

Total

Sep- 2017

713

752

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Solvency ratio remains healthy

The solvency ratio (ratio of available solvency margin to regulation-required

solvency margin) of life insurers remains healthy, aided by improved profitability

trend and lower share of protection business, which requires higher capital. Most

insurers remain well capitalized (significantly above the minimum regulatory

requirement of 150%), which will support business growth over the next few years.

Also, migration to economic capital will further ease capital requirements for the

insurers, as the insurance industry in India is still savings oriented and overall sum

assured still remains relatively lower than most countries.

The listing of the top four private players (ICICI PruLife, SBI Life, HDFC Life, Max Life)

will allow insurers to raise capital as and when needed to meet growth

requirements. Tier-II bonds also remain a viable option for fund raising. We note

that Indian insurers’ solvency margin is comparable to their larger Chinese peers.

Exhibit 42: Life insurers’ solvency margin (%) remains healthy

China Pacific

China Life

Ping An

Bajaj Allianz

Canara Hsbc

Aviva

Icici Prudential

Kotak life

Reliance

Aegon Religare

Sbi Life

Birla Sunlife

Hdfc Standard

Lic

208

204

182

192

173

Source: Company, MOSL

Note: Data Ping An, China life, China pacific is as of Dec’16

289

300

272

346

401

257

297

226

582

17 November 2017

HDFC Standard Life

Valuation of Indian life insurers – How does it stack

against global peers?

There has been a clear re-rating of the Indian life insurance sector over the last two

years, which has resulted in many of these insurers trading at significant premium to

their embedded value. While such valuations may appear excessive compared to

other global insurers the multiple differential is accounted for by the difference in

business growth and profitability. We note that the five-year average premium

growth for life insurers in advanced countries is a muted 1.5% against 9% average

new business APE growth for Indian life insurers (10% average growth in total un-

weighted premium) over the similar period. Also, several global insurers are

reporting single-digit RoE against 19%-29% for the top four listed private insurers in

India.

Exhibit 43: Trend in global life insurance premium growth

FY12

FY13

FY14

FY15

FY16

5 yr avg

gr. (%)

1.5%

9.4%

2.8%

Exhibit 44: New business APE growth for private players (%)

FY13 FY14

Individual, APE

Group, APE

Total

FY15 FY16

FY17

5 yr avg

gr. (%)

22.0%

9.6%

8.6%

Advanced markets 1.8% -0.2% 3.8%

Emerging markets 4.9%

World

2.3%

6.4%

0.7%

4.3%

2.5% -0.5%

4.0%

2.5%

1.9% -48.2% 116.2% 13.6% 26.4%

-20.1% -47.3% 94.2% 16.1% 5.3%

-4%

-5%

16%

14%

22%

6.9% 12.0% 17.0%

Source: Company, MOSL

As highlighted in the exhibit below, the disparity in valuation between Indian and

Chinese Insurance companies is justified by the differential in return ratios. We note

that China Life Insurance company and China Taiping are trading at 1.5x/1.2x of

FY16 EV respectively however have recorded modest FY16 RoE of 6% - 8%. On other

hand, Ping An Insurance, which recorded superior RoE of 17.4%, trades at a rich

valuation of 4.1x FY16 EV - comparable to HDFC Life which recorded FY17 RoE of

28.5%. We thus believe that current valuations of Indian insurers are a rightful

reflection of their return ratios and potential growth trajectory.

Exhibit 45: Valuation comparison across Asian peers

China Life (CNY)

FY16

Return on Common Equity (%)

Return on Assets (%)

Return on Capital (%)

Return on Invested Capital (%)

EPS

EV (b)

Mcap (b)

Price

Price Earnings Ratio (P/E) (x)

Price to EV (x)

11.4

1.5

9.5

8.7

1.2

11.4

560.3

FY17

6.1

0.7

6.4

10.2

0.7

10.7

652.1

1,010.6

26.7

40.4

1.5

China Taiping (HKD)

FY16

12.6

1.4

7.7

10.9

1.9

16.6

92.0

FY17

7.8

1.0

6.1

11.4

1.3

15.6

87.4

106.2

23.4

1.2

Ping An Insurance (CNY)

FY16

17.4

1.2

2.6

7.1

3.0

18.3

325.5

FY17

17.4

1.2

3.7

47.9

3.5

21.0

360.3

1,480.4

22.0

4.1

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 46: Valuation comparison across listed players

HDFC Life Ins.

FY2016

FY2017

28.5

25.5

37.8

41.0

20.9

21.0

16.1

21.1

4.1

4.5

102.3

123.9

290

70.7

64.9

5.7

4.7

79%

64%

68%

67%

SBI Life Ins.

FY2016

FY2017

19.6

18.6

86.1

95.5

19.0

23.0

0.0

21.4

8.6

9.5

130.0

165.4

649.0

649

75.5

68.1

5.0

3.9

81%

67%

58%

ICICI Pru

FY2016

FY2017

31.2

28.7

34.3

34.8

15.3

16.5

0.8

16.1

11.5

11.7

139.4

161.8

546.3

381

33.0

32.4

3.9

3.4

52%

44%

60%

58%

MAX

FY2017

18.8

29.1

33.2

19.9

17.3

67.4

147.1

548

48.1

32.0

3.8

3.2

41%

34%

63%

62%

Source: Company, MOSL

FY2016

17.9

21.5

22.1

17.0

11.5

56.2

RoE (%)

RoIC (%)

EVOP as % of IEV

RoEV (%)

EPS (INR)

EV (INRb)

Mcap (INRb)

Price (INR)

P/E

P/EV

P/AUM

VIF as a % of AUM

We believe the life insurance sector in India is in a sweet spot, where strong

structural potential is now overlapping with buoyant equity markets, rising share of

financial savings and higher disposable income. We expect Indian insurers to trade

at a premium to global insurers, though trading multiples would vary with economic

cycles.

Exhibit 47: Snapshot of global insurers (INR b)

HDFC Life

FY16

Profit and Loss matrix

PAT (Shareholder's a/c) 8,183 8,921

Premium (INRm)

& growth (%)

Total premium*

163130 194455

Operating ratios

Investment yield (%)

Total expense ratio

Solvency margin

Persistency ratios (%)

13th Month

25th Month

Profitability ratios (%)

RoE (%)

Valuation ratios

Embedded Value,

INR b

*Un weighted

130.0

165.4

139.4

161.8

325474 360312

560277 652057

151918

181603

Source: Company, MOSL

20.9

21.0

19.6

18.6

31.2

28.7

17.4

11.4

6.1

14.2

9.1

79.0

67.0

81.0

73.0

80.0

72.1

80.6

73.0

82.4

71.2

85.7

73.9

90.9

86.5

91.4

86.4

85.5

90.2

85.9

90.3

85.6

92.3

86.6

2.5

15.8

198.4

12.6

16.3

191.6

4.6

13.7

212.0

10.2

11.6

204.0

1.2

13.1

320.0

13.0

13.9

283.2

8.4

50.5

219.7

6.2

48.3

225.9

6.4

17.4

359.02

4.6

19.7

297.16

6.8

262

4.9

31.9

257

8.6

9.5

16.5

16.8

22.5

18.9

34.6

19.1

17.7

12.1

FY17

SBI Life

FY16

FY17

ICICI Prudential

FY16

FY17

Ping AN Insurance

FY15

FY16

China Life

Insurance

FY15

FY16

China Pacific

Insurance Group

FY15

FY16

158.2

210.1

191.6

222.5

222.0

291.2

363.9

430.4

203.3

234.0

17 November 2017

HDFC Standard Life

HDFC Life: Another 'compounder'

Quality franchise; attractive valuations



HDFC Standard Life insurance is a JV between HDFC (India’s leading housing

finance company) and Standard Life Aberdeen plc through its wholly owned

subsidiary, Standard Life Mauritius. The company offers a complete bouquet of

insurance products comprising of protection, pension, savings & investment and

health solutions for both its individual and group customers. HDFCSL has

emerged as one of the top three private insurers in India with a new business

premium APE market share of ~13% for FY18YTD amongst private insurers. It

has strong return ratios (FY17 RoEV at 21%) and highest new business margin

amongst private insurers (22% for FY17) backed by its balanced product mix

(47%

ULIPs, 26% Participating, 27% Non-Participating business in FY17),

strong

distribution network and lower operating cost.

As on Sep-17, the company operates out of

414 branches, has 16,544 full-time

employees and a growing base of 66,372 individual

agents. HDFC SL has a

solvency ratio of 200.5% (requirement of 150%) and has insured 64.5 million

lives across individual and group customers as on Sep-17. We expect HDFC Life

to deliver average RoEV of ~19x% over FY17-20E and value it on 3.5x Mar-20E

EV at INR370 per share, which implies an upside of 28% from the issue price. We

initiate coverage on the stock with a BUY rating.

Strong growth and market share gains; expect 25% cagr in new business

over FY17-20E

HDFC Life has strengthened its position in the industry and consistently ranks

amongst the top three private insurers. The company has a market share of ~13%

amongst private insurers (from ~8% in FY10).

Besides maintaining healthy trajectory

in premium growth the company has also diversified its business mix and

strategically reduced its reliance on low margin ULIP business. This has enabled the

HDFCSL to report industry leading return ratios. We expect HDFC Life to deliver 25%

cagr in new business over FY17 to FY20E.

Exhibit 48: Composition of ULIP has steadily declined to 47%

Participating

Non-participating

42%

ULIPs

40%

38%

Exhibit 49: We expect HDFC life to report 25% cagr in new

business premium over FY17-20E

New business prem - APE (INRb)

66.7

51.9

36.2

40.9

82.8

57%

56%

53%

47%

14%

28%

FY14

19%

25%

FY15

20%

27%

FY16

27%

26%

FY17

31%

26%

FY18E

33%

26%

FY19E

35%

27%

FY20E

31.8

FY15

FY16

FY17

FY18E

FY19E

FY20E

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 50: Lives insured and new business policies issued

Number of lives insured (individual customers)

Number of lives insured (group customers)

Number of new business policies (individual customers)

FY15

830,951

4,861,059

659,672

FY16

1,181,597

14,226,737

849,181

FY17

1,098,329

19,774,194

851,536

Sep-17

430,273

11,312,543

429,799

Source: Company, MOSL

Exhibit 51: Trend in APE premium and growth

Total New Busienss APE

-22%

26%

14%

13%

27%

YoY growth

28%

24%

Exhibit 52: Trend in new business margin

NBP margin reported (%) - post overrun

22.4

22.3

19.9

18.5

12.7

15.2

22.7

FY13

FY14

FY15

FY16

FY17

FY18E FY19E FY20E

Source: Company, MOSL

FY13

FY14

FY15

FY16

FY17

FY18E FY19E FY20E

Source: Company, MOSL

Exhibit 53: Composition of ULIP has steadily declined to 47%

Participating

Non-participating

ULIPs

Exhibit 54: Persistency ratio has improved across the curve

FY 2014

FY 2015

FY 2016

2QFY18

57%

56%

53%

47%

42%

40%

38%

14%

28%

FY14

19%

25%

FY15

20%

27%

FY16

27%

26%

FY17

31%

26%

FY18E

33%

26%

FY19E

35%

27%

FY20E

13th Month 25th Month 37th Month 49th Month 61st Month

Source: Company, MOSL

Exhibit 55: Trend in operating RoEV and RoE

43%

40%

34%

28%

26%

22%

19%

FY14

FY15

21%

16%

FY16

FY17

20%

19%

25%

24%

ROE

RoEV

Exhibit 56: We value HDFC Life at Rs743bn (3.5x FY20E EV)

INRb

RoEV

RoE (%)

Embedded value

Appraisal Value

Fair value / Embedded value

Number of shares, m

Valuation per share

Implied P/E multiple

Implied new business multiple

Issue price, INR

Upside

FY20E

19%

24%

210

723

3.4

2,009

370

53.5

290

28%

Source: Company, MOSL

23%

22%

FY13

FY18E FY19E FY20E

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 57: Insurance industry new business sales (APE) for Oct’17 and FY18 YTD (INR mn)

Life Insurer

Industry Total

LIC

Total Private

ICICI Prudential

SBI Life

HDFC Life

Max Life

Kotak Life

Bajaj Allianz

Birla Sunlife

Tata AIA

PNB Met Life

Canara HSBC OBC

Reliance Life

Exide Life

IndiaFirst Life

DLF Pramerica

Shriram Life

Star Union Dai-ichi

Future Generali

IDBI Federal Life

Bharti Axa Life

Aviva Life

Edelweiss Tokio

Aegon Religare

Sahara Life

Oct - 17

59,379

31,892

27,487

5,873

6,252

3,733

1,807

1,508

1,500

743

922

795

428

510

465

428

567

316

306

350

268

322

139

161

YoY growth (%) MoM growth (%)

28.7%

37.7%

19.5%

29.5%

44.7%

25.0%

13.2%

70.2%

-14.4%

-66.7%

62.6%

14.5%

27.6%

2.5%

48.9%

2.0%

181.4%

15.4%

40.8%

32.4%

1.6%

3.5%

-12.5%

32.5%

120.8%

-100.0%

-14.0%

-5.7%

-22.0%

-12.5%

-11.0%

-26.6%

-35.6%

-21.0%

-26.9%

-36.2%

-19.9%

-32.2%

-54.0%

-33.0%

-26.9%

-12.9%

0.3%

-27.8%

-48.2%

-18.8%

-38.1%

-11.0%

-32.7%

0.0%

-8.1%

-100.0%

FY18 (YTD)

392,287

202,852

189,435

43,125

39,304

24,175

13,258

9,823

9,520

5,997

5,963

5,725

4,346

4,145

3,398

2,997

2,967

2,601

2,527

2,393

2,314

1,938

1,299

1,024

578

YTD growth (%)

17.1%

13.1%

21.7%

44.7%

38.5%

36.8%

16.9%

10.7%

-1.7%

-55.7%

37.5%

18.3%

79.8%

-20.3%

2.1%

31.3%

156.1%

4.4%

-6.6%

41.9%

21.4%

-3.0%

51.0%

29.0%

76.1%

-68.4%

Source: Company, MOSL

Exhibit 58: HDFC has been successfully leveraging the group customer base to cross sell

individual insurance products

FY15

Number of policies from existing group customers

Total number of individual new business policies

Cross sell on group customer base (%)

10,508

659,672

1.6%

FY16

29,685

849,181

3.5%

FY17

46,959

851,536

5.5%

Sept'FY17

28,860

429,799

6.7%

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 59: Market share amongst private insurers for Oct’17 and FY18 YTD

Life Insurer

Total Private

ICICI Prudential

SBI Life

HDFC Life

Max Life

Kotak Life

Bajaj Allianz

Birla Sunlife

Tata AIA

PNB Met Life

Canara HSBC OBC

Reliance Life

Exide Life

IndiaFirst Life

DLF Pramerica

Shriram Life

Star Union Dai-ichi

Future Generali

IDBI Federal Life

Bharti Axa Life

Aviva Life

Edelweiss Tokio

Aegon Religare

Sahara Life

Oct - 17

100.0%

21.4%

22.7%

13.6%

6.6%

5.5%

2.7%

3.4%

2.9%

1.6%

1.9%

1.7%

1.6%

2.1%

1.1%

1.3%

1.0%

1.2%

0.5%

0.6%

0.3%

0.0%

1.6%

4.0%

0.6%

-0.4%

1.6%

-2.2%

-7.0%

0.9%

-0.1%

0.1%

-0.3%

0.3%

-0.3%

1.2%

0.0%

0.2%

0.1%

-0.2%

0.1%

0.2%

0.0%

2.3%

2.8%

-0.8%

-1.4%

0.1%

-0.4%

-0.6%

0.1%

-0.4%

-1.1%

-0.3%

-0.1%

0.2%

0.5%

-0.1%

-0.6%

0.1%

-0.3%

0.1%

-0.1%

0.0%

0.1%

0.0%

22.8%

20.7%

12.8%

7.0%

5.2%

5.0%

3.2%

3.1%

3.0%

2.3%

2.2%

1.8%

1.6%

1.4%

1.3%

1.2%

1.0%

0.7%

0.5%

0.3%

0.0%

3.6%

2.5%

1.4%

-0.3%

-0.5%

-1.2%

-5.5%

0.4%

-0.1%

0.7%

-1.2%

-0.3%

0.1%

0.8%

-0.2%

-0.4%

0.2%

0.0%

-0.3%

0.1%

0.0%

0.1%

0.0%

YoY

change

(% pts)

MoM

change

(% pts)

FY18

YTD

change

(% pts)

Source: Company, MOSL

17 November 2017

HDFC Standard Life

High intangible entry barriers provides larger insurers a

distinct edge over others

The Indian life insurance industry consists of 23 private insurers and one public

insurer. Despite this we believe that there are huge intangible entry barriers in this

business and it is therefore be extremely difficult for any new entrant to make a

mark in this business. The top bancassurers have made significant investments in

building their brand, customer service touch-points, digital platform and distribution

which gives them a sustainable competitive edge over most other insurers. Also,

unlike any other industry in the country the insurance buyer in India is not very price

sensitive and faith and sustainability of the company is a critical factor behind the

purchase. We have seen instances of aggressive term insurance pricing by some of

the smaller private insurers however they have not had much success in scaling up

their protection portfolio. We believe that large insurers are sensible enough not to

indulge in any aggressive pricing war as they are already accounting for ~70% of

private market share and thus expect the industry to report healthy new business

margins over next few years.

Exhibit 60: Market share trend in new business APE for key private insurers

16%

12%

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

YTD

ICICI Prudential

Bajaj Allianz

HDFC Standard

Birla Sunlife

Max Life

SBI Life

Reliance Life

Exhibit 61: Market share trend in Individual new business APE for key private insurers

ICICI Prudential

16%

12%

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18 YTD

Source: Company, MOSL

SBI Life

HDFC Standard

Max Life

Bajaj Allianz

17 November 2017

HDFC Standard Life

Top 5 insurers are accounting for nearly the entire growth of the private

industry

The following chart shows that the growth contribution of top five bancassurers has

increased from 88% to ~100% over past few years even as their combined market

share amongst private insurers has increased from 54% in FY14 to 68% currently.

This highlights that despite a condusive macro environment the smaller players are

getting marginalized in the industry and the larger insurers are going to benefit

disproportionately more from the strong growth potential of the sector.

Exhibit 62: IRDA : Market share trend of top 5 bancassurers and their contribution in

incremental growth

140%

100%

60%

20%

-20%

FY14

FY15

FY16

FY17

FY18 YTD

Source: Company, MOSL



Combined market share of top 5 bancassurers

Share in incremental growth (%)

Overall growth for private players

Strong brand and customer service brings some "pull" to an otherwise highly

"push" industry:

HDFC Standard Life insurance has a strong parentage and a

very reputed brand name which enables it to attract and gain new business

from potential customers. The company has won several recognitions for its

strong brand and has figured amongst 50 most valuable brand list in India in

2016. It was selected as a superbrand in India for three consecutive years from

2014 to 2016. Reputed brand and superior customer service has further enabled

the company to create a strong positioning for itself and build a high customer

recall.

17 November 2017

HDFC Standard Life

Business mix is well diversified; composition of ULIPs

stands relatively lower at 47%

HDFC Life has a balanced product portfolio. Despite 15% CAGR in new business APE

overFY15-17, it has been able to scale up the share of traditional and protection

products in its new business mix. Par/non-par products and ULIPs constitute

26%/27% and 47%, respectively in the total new business mix. The company has also

improved the share of protection products by1440bp between FY15 and 1HFY18

and now has the highest composition of high-margin protection business (26.4% in

1HFY18) amongst all leading insurers. The company intends to maintain a healthy

50:50 product mix between ULIPs and traditional business. While ULIPs is a low-

margin business, it is still an attractive product for low-cost bancassurers since they

do not expose the company to volatility in interest rates and also now carries

negligible regulatory risk.

Exhibit 63: Trend in business mix

Participating

Non-participating

ULIPs

82%

70%

65%

57%

56%

53%

47%

16%

FY11

23%

FY12

27%

FY13

14%

28%

FY14

19%

25%

FY15

20%

27%

FY16

27%

26%

FY17

Source: Company, MOSL

Exhibit 64: HDFC Life has one of the most balanced business mix

Participating

Non-participating

Unit Linked

25%

75%

27%

26%

HDFC Life

29%

23%

SBI life

14%

12%

ICICI Pru

Max life

Source: Company, MOSL

14%

47%

48%

61%

17 November 2017

HDFC Standard Life

Exhibit 65: Share of ULIP business is lowest amongst larger private peers

100%

80%

60%

40%

20%

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

HDFC Life

SBI life

ICICI Pru

Max

High share of protection business + lower ULIP composition has boosted

margins

HDFC Life’s new business margins are much higher than its other larger peers. This

has happened on the back of healthy underwriting, strong cost-control and well

balanced product mix. HDFC Life is currently making new business margins of ~22%,

which is significantly higher than the average margins of other top four insurers. The

company has a higher share of high-margin protection business and higher

proportion of low-cost online sales, which enables it to maintain healthy margins.

The strong control on cost ratios led by multiple productivity improvement

initiatives has has further enabled a decline in cost overrun and supported margins.

Exhibit 67: Business mix is well diversified with share of

Exhibit 66: New business margin has improved steadily to 22% protection business improving to 26.4% over 1HFY18

New Business Margins (%)

18.5

12.7

15.2

12.0%

19.9

22.0

22.3

Contribution of protection products (as % of total NBP)

22.4

22.7

21.8%

17.2%

26.4%

FY13

FY14

FY15

FY16

FY17

FY18E FY19E FY20E

Source: Company, MOSL

FY15

FY16

FY17

1HFY18

Source: Company, MOSL

Exhibit 68: Regional comparison of NBAP margins: NBAP margins are lower in India than

other countries

FY16

FY17

Note: For Chinese insurance companies, data is as of December ending 2015 & December 2016

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Strong distribution network will support business

growth

The company offers its products through diversified distribution network which

comprises of four distribution channels, namely: bancassurance, individual agents,

direct, and brokers/others. The multi-channel distribution network provides HDFC SL

the flexibility to adapt to changes in the regulatory landscape and mitigate the risk

of over-reliance on any single channel. All the company’s distribution channels have

been independently profitable over past three years. The company benefits from

the strong bancassurance channel which generates ~61% of total new business

premium even as the company has rationalized its own branch network over past

few years. Besides strong bancassurance tie-ups, the company has over 45 broker

and other tie-ups, comprising of 21 major insurance brokers and 29 key insurance

marketing firms. We thus expect HDFC Life to maintain strong new business growth

at 25% CAGR over FY17-20E.

Exhibit 69: Trend in premium sourcing mix

Individual agents

Corporate agents -Others

6.0

2.5

69.6

5.3

16.6

FY13

10.2

2.1

65.3

6.2

16.3

FY14

Brokers

Micro agents

10.0

2.2

67.0

4.4

16.5

FY15

Corporate agents-Banks

Direct business

12.0

2.7

68.1

3.7

13.5

FY16

14.8

4.3

61.1

4.2

15.5

FY17

Source: Company, MOSL

Exhibit 70: Number of employees, branches and agents for major private insurers

As of FY17

HDFC Life

SBI life

ICICI Pru

Employees

14,800

12,051

12,397

Branches

414

500+

512

Agents

54,516

145,516

136,114

Source: Company, MOSL

Agency channel relatively weak; aims to develop this, going ahead

Contribution of the agency channel to total new business premium is relatively low

at ~15% against 23-35% for other large bancassurers. In fact, the contribution of this

channel has declined gradually over past few years. Post IRDA cap on commissions

and ULIP charges, the commission payout to agents declined significantly. This

resulted in a steep decline in the agency force for all private insurers. However, with

growth returning and cost-optimization efforts paying off, the company has now

started putting significant efforts in building up this very important but often

neglected distribution channel. Over 1HFY18 the company has thus added 11,856

agents and thus increased the size of its agency channel to 66,372 agents.

17 November 2017

HDFC Standard Life

Exhibit 71: Contribution of agency channel to total individual premiums

75%

62%

49%

36%

23%

10%

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

HDFC Life

SBI life

ICICI Pru

Max

Productivity of agency channel has already begun to increase

HDFCSL is alongside also focusing on improving the productivity of this channel.

The company has thus reported an improvement in agent productivity, with average

Premium per agent increasing from INR59k in FY12 to INR84k in FY17. We expect

productivity of the agency channel to improve further on sustained efforts made in

building this channel, adequate training provided to agents and reduced cases of

mis-selling. This will further diversify the company’s distribution mix and enable

healthy business growth

Exhibit 72: Agents productivity : New business Premium (NBP) as of 2QFY18

234,501

165,933

95,073

127,531

108,097

HDFC Life

ICICI Pru

SBI life

Max lie

Bajaj Allianz

Source: Company, MOSL

Exhibit 73: Size of agency channel for major insurers as of 2QFY18

136,114

95,355

54,516

77,097

54,283

HDFC Life

ICICI Pru

SBI life

Max lie

Bajaj Allianz

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Bancassurance – key distribution edge; however, no

longer the cheapest channel

Bancassurance has been the top most distribution channel for all major private

insurers. Its share in total new business sales for HDFC Life stands at ~61% and we

expect this channel to maintain its dominance aided by the growing number of

bancaussrance partners. The company’s bancassurance partner includes banks,

NBFCs, MFIs, SFBs and now has a tie-up with 125 partners, significantly higher than

any of its competitors.

However, we note that bancassurance is no longer the cheapest channel for

insurers, as banks now have an option to tie up with more than one insurer and are

now bargaining hard for higher share of commissions. HDFC Bank, for instance, has

already announced tie-ups with other life insurers (Birla Sunlife and TATA AIA).

Insurers have thus invested significant efforts to strengthen their direct sales

channel and technological capabilities to maintain strong control on their cost

ratios. The increasing number of bancassurance partners will enable the company to

deepen its distribution reach and thus create a wider customer base.

Exhibit 74: Trend in premium sourcing mix

Individual agents

Corporate agents -Others

6.0

2.5

69.6

5.3

16.6

FY13

10.2

2.1

65.3

6.2

16.3

FY14

Brokers

Micro agents

10.0

2.2

67.0

4.4

16.5

FY15

Corporate agents-Banks

Direct business

12.0

2.7

68.1

3.7

13.5

FY16

14.8

4.3

61.1

4.2

15.5

FY17

Source: Company, MOSL

HDFC Life has formed bancassurance tie-ups with a large number of banks/NBFCs

such as Bajaj Finance, Capital Small Finance Bank, Catholic Syrian Bank, Chola

Insurance Distributions Services, Equitas Small Finance Bank, HDFC Bank, HDFC

Credila Financial Services, HDFC Sales, HDFC Securities, IDFC Bank, Indiabulls

Housing Finance, Janalakshmi Financial Services, Manappuram Finance, PNB

Housing Finance, RBL Bank, Saraswat Bank, and Suryoday Small Finance Bank.

17 November 2017

HDFC Standard Life

Exhibit 75: Key bancassurance partners of major insurers

Insurer

ICICI Prudential

HDFC Life

Kotak Life

Canara HSBC OBC

Aviva

India First

SBI Life

Bajaj Allianz

IDBI Federal Life

Max Life

Birla Sunlife

PNB Met Life

Tata AIA

Bancassurance Partners

Standard Chartered Bank, ICICI Bank

HDFC Bank, Ratnakar Bank and IDFC Bank

Kotak Bank, DNS Bank

Canara Bank, HSBC, Oriental Bank of Commerce

RBS, Punjab and Sind Bank

Bank of Baroda, Andhra Bank

SBI, BNP Paribas Cardiff

Dhanlaxmi Bank, ujjivan

IDBI Bank, Federal Bank

Axis Bank, Laxmi Vilas Bank, Yes Bank

Deutsche Bank AG, DCB Bank

Punjab National Bank(PNB), J&K Bank, Karnataka Bank

Citibank, IndusInd Bank, DBS

Source: Company, MOSL

Exhibit 76: Trend in number of bancassurance partners for HDFC life

Major bancassurance partners

FY15

FY16

FY17

117

Sept'FY17

125

Source: Company, MOSL

Exhibit 77: Almost 83% of employees belongs to sales function

Sales (Frontline)

14%

Sales mgmt

Operations

14%

Others

13%

70%

FY15

FY16

FY17

Sept'17

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Persistency rate has shown an all-round improvement;

we expect trend to continue

HDFCSL has reported a consistent improvement in persistency ratio. The persistency ratio for

the 13th month bucket stood at 80.9% in FY17 (82.2% in 1HFY18) while at the longer end the

61st month persistency stood at 56.8% in FY17. The improvement in persistency rate has

helped boost operating returns for the company and have supported healthy growth in

renewal premiums. We expect persistency rate to improve further as company’s focus on

need based selling and superior customer service further improves satisfaction levels while

the macro environment is likely to remain conducive.

Exhibit 78: Persistency rate has improved significantly; but its not done yet

13th Month

25th Month

37th Month

49th Month

61st Month

FY13

FY14

FY15

FY16

FY17

Source: MOSL, Company

Exhibit 79: Persistency rate of major insurers

HDFC life

80.9%

87.0%

80.6%

ICICI PruLife

80.4%

56.8%

68.1%

55.6%

53.0%

SBI life

Max life

13th mth

61th mth

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Strong cost control has helped deliver healthy return ratios

While HDFC Life already operates on a very low-cost structure, it has further

strengthened its cost-leadership by increasing the proportion of online sales. The

company sells a variety of term plans, ULIPs, and pension/annuity plans online. It

expects gradual improvement in cost ratios, as opex growth remains modest while it

continues to fare well on margins and new business growth.

Exhibit 80: Total expense ratio has been under control

Total Expense Ratio

21.9%

18.1%

17.5%

3.7%

14.9%

14.2%

15.8%

16.3%

2.8%

2.5%

2.7%

2.9%

Exhibit 81: Operating expense as % of AUMs

4.3%

Opex/Avg AUM

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY12

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

Exhibit 82: Comparison of operating expense as % of weighted premiums for key insurers

50%

40%

30%

20%

10%

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

HDFC Life

SBI life

ICICI Pru

Max

Exhibit 83: Comparison of operating expense as % of AUMs for key insurers

FY12

FY13

FY14

FY15

FY16

FY17

Source: Company, MOSL

HDFC Life

SBI life

ICICI Pru

Max

17 November 2017

HDFC Standard Life

Significant investments in building the technological backbone are yielding

results

HDFC has made significant investments in building its digital platform which has

enabled it to streamline and digitize customer on-boarding and servicing.

This has boosted productivity levels across all levels in the value chain, including its

distribution partners. During FY17, the company sourced 48% of the new

applications through mobile devices. Besides customer acquisition and policy

issuance the digital platform also helps the company in efficiently handling customer

queries and grievances. This thus provides the company an edge over many other

insurers and makes the business highly scalable without incurring material

incremental costs. The annualized premium equivalent earned through online

channels has thus increased at a CAGR of 28% over past 2x years. The continued

increase in smart phone user base, improved and cost-effective data services and

government’s continued thrust towards formalization of the Indian economy will

help sustain stronger growth trajectory for the digital channel.

Exhibit 84: Usage of digital channels has increased significantly over past few years

Fiscal Year Ended March 31

% of new business initiated through digital platforms

% of customer documentation uploaded through digital platforms

% of customer verification through mobile devices

% of renewal premium collected electronically

% of renewal policies collected electronically

% of policies with auto-debit and digital payments

FY15

51.5%

65.1%

71.0%

FY16

90.0%

76.9%

2.0%

61.2%

70.8%

79.5%

FY17

99.2%

97.0%

22.7%

69.6%

77.7%

76.0%

Six months Ended

September 30,

FY17

99.9%

96.0%

45.0%

72.9%

82.1%

66.1%

Source: Company, MOSL

Product innovation will drive market share gains and boost profitability

In a highly competitive market with more than twenty four life insurers present

product innovation plays an extremely important role in driving healthy business

growth and stronger profitability for the insurers. Insurers thus need to be highly

responsive to the need of wide variety of Indian customers and introduce products

which address these specific requirements. This requires high level of innovation at

the insurers end and right level of marketing to ensure the product success. This

strategy will thus enable insurers to gain customer mindshare and cross sell other

basic insurance products. Recently, few large private insurers (HDFC Life & ICICI

Prulife) have launched a variety of term insurance with options of – (i) critical illness

cover, (ii) savings and investment option, and, (ii) added riders of accident and

disability benefits, in order to capitalize on rapidly growing protection market.

Their first online term product, HDFC Life Click 2 Protect, in FY12. Their range of

Click2Series products sold through online channel collectively generated an APE of

INR1.09b in FY17 (31% CAGR over past two years) while the APE premium collection

in 1HFY18 has further improved to INR0.87bn. HDFC Life has recently launched

“Cancer Care” and HDFC Life Group Health Shield product and has received approval

for one other non-participating protection product - HDFC Life Cardiac Care, which it

plans to launch during Fiscal 2018. The company has already insured 245,000 lives

under the HDFC Life Cancer Care product over past two years.

17 November 2017

HDFC Standard Life

Exhibit 85: Product offerings of HDFC Life

Products

Name of product

HDFC Life Super Income Plan

HDFC Life ClassicAssure Plus

HDFC Life Sampoorn Samridhi Plus

HDFC Life Personal Pension Plus

Participating

HDFC Life Uday

products

HDFC Life Pragati

HDFC Life YoungStar Udaan

HDFC Life Super Savings Plan

HDFC Life Group Pension Plan

HDFC Life Click 2 Protect 3D Plus

HDFC Life Click 2 Protect Plus

HDFC Life CSC Suraksha Plan

HDFC Life Group Term Insurance Plan

Non-participating

protection (term)

HDFC Life Group Credit Protect

products

HDFC Life Group Credit Protect Plus Insurance Plan

HDFC Life Group Credit Suraksha

HDFC Life Group Jeevan Suraksha

HDFC Life Pradhan Mantri Jeevan Jyoti Bima Yojna Plan

HDFC Life Cancer Care

Non-participating

protection (health

HDFC Life Easy Health

insurance) products

Click 2 Protect Health

HDFC Life Sanchay

HDFC Life Guaranteed Pension Plan

Other non-

participating

HDFC SL Sarvgrameen Bachat Yojana

products

HDFC Life New Immediate Annuity Plan

HDFC Life Group Variable Employee Benefit plan

HDFC Life Click 2 Invest – ULIP

HDFC Life Click 2 Retire

HDFC Life ProGrowth Plus

HDFC SL ProGrowth Super II*

HDFC SL ProGrowth Flexi*

HDFC Life Assured Pension Plan

HDFC Life Sampoorn Nivesh

HDFC Life Capital Shield

Unit-linked

insurance products

HDFC SL Crest*

HDFC SL YoungStar Super Premium*

HDFC Life Smart Woman

HDFC Life Single Premium Pension Super

HDFC SL ProGrowth Maximiser*

HDFC Life Pension Super Plus

HDFC Life New Group Unit Linked Plan

HDFC Life Group Unit Linked Pension Plan

Accidental Death Benefit

Total & Partial Permanent Disability Benefit

Total Permanent Disability Benefit

Critical Illness Benefit

Riders

Accident Death Benefit

HDFC Life Income Benefit on Accidental Disability Rider

HDFC Life Critical Illness Plus Rider

HDFC Life Group Critical Illness Plus Rider

Primary customer need addressed

Income/Savings

Savings

Retirement/Pension

Small Savings

Child Education/Marriage

Savings

Retirement/Pension

Protection

Protection for micro loans

Protection

Health

Protection (Term plus Health)

Savings

Retirement/Pension

Savings for micro segment

Retirement/Pension

Gratuity, leave encashment and superannuation

Wealth Creation

Retirement/Pension

Wealth Creation

Retirement/Pension

Wealth Creation

Child Education/Marriage

Wealth Creation for Women

Retirement/Pension

Wealth Creation

Retirement/Pension

Gratuity and Leave encashment

Superannuation

Protection (Individual)

Health (Group)

Protection (Group)

Health (Individual)

Health (Group)

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Stable and experienced management team

HDFC SL has a strong management team with rich experience across banking,

financial services and insurance sectors. All the key management personnel have

been employed with the company for several years and indicate the healthy stability

at the top management level. The leadership team is committed to deliver healthy

returns to the stakeholders and work with the HDFC group ethos of pursuing

profitable growth.

Experienced management team



Mr. Deepak Parekh

is a Nominee Director and Chairman of the company. He has

been on the Board since August 2000. He is also the chairman of HDFC. Mr.

Parekh is an associate of the ICAEW. He is on the board of several leading

corporations across diverse sectors. He is the non-executive chairman of HDFC

AMC Ltd, HDFC ERGO General Insurance Company Limited, Siemens Limited and

GlaxoSmithKline Pharmaceuticals Limited

Mr. Amitabh Chaudhry

is the MD & CEO of the company since Jan-10. Mr.

Chaudhry holds a B.E. degree from BITs Pilani and post graduate diploma in

management from IIM A. Mr. Chaudhry was the MD and CEO of Infosys BPO and

has worked in diverse roles across banking and finance, head of technology,

investment banking, wholesale banking & global markets and CFO of Bank of

America (India).

Ms. Vibha Padalkar

is an ED & CFO of HDFC SL and joined the company in Aug-

08. Ms. Padalkar is a member of the Institute of Chartered Accountants of

England and Wales and also Institute of Chartered Accountants of India. She

leads the finance, legal, secretarial and compliance, internal audit and risk

functions as well oversees pension subsidiary, HDFC Pension.

Mr. Srinivasan Parthasarathy

is the Senior Executive VP - Chief Actuary &

Appointed Actuary of HDFC SL. He holds a bachelor’s degree in science

(mathematics) from Loyola College, University of Madras. He is also a Fellow of

Institute of Actuaries of India (2008) and Institute of Actuaries, UK (2004). He

has been associated with the company since Dec-11. He was appointed as

Senior Executive VP - Chief Actuary & Appointed Actuary with effect from Apr,

2015.

Mr. Prasun Gajri

is the CIO of the Company. He holds a bachelor’s degree in

electronics and electrical communication engineering from Punjab Engineering

College, Chandigarh and a post graduate diploma in management from IIMA. He

is also a CFA from the CFA Institute, USA. He has been associated with Company

since April 24, 2009. Prior to joining our Company, he was associated with

Citibank N.A and Tata AIG Life Insurance Company Limited.

17 November 2017

HDFC Standard Life

Key management personnel

Mr. Amitabh Chaudhry

Ms. Vibha Padalkar

Mr. Srinivasan Parthasarathy

Mr. Suresh Badami

Mr. Rajendra Ghag

Mr. Sanjay Vij

Mr. Prasun Gajri

Mr. Sanjeev Kapur

Mr. Subrat Mohant

Mr. Khushru S dhwa

Designation and Role

MD & CEO

ED & CFO

Chief Actuary & Appointed Actuary

Chief Distribution Officer

Chief HR Officer

Executive VP - Bancassuran e

CIO

Sr E VP Group Sales and Bancassurance

Head- Strategy, Operations, Business Systems and Technology and Health

Ex VP - Audit & Risk Management

Source: Company

Strong customer service and claim settlement record will help attract new

business

Strong customer service and high claim settlement ratio will help attract new business

HDFCSL places a high emphasis on offering high quality customer service across the

life of an insurance policy, from product development to customer on-boarding and

policy issuance to customer service and claims settlement. This has helped the

company in lowering the customer complaints to 81 complaints per 10k policies

from 498 complaints in FY13. Besides, the reduction in customer complaints the

company has shown strong improvement in turnaround time for complain

resolution and now resolves ~99% of complaints within 15 days.

HDFCSL has one of the best claims settlement ratio of 99.2% in FY17 (individual

claims settlement ratio of 97.6% and a group claims settlement ratio of 99.7%). The

company’s continued efforts in improving the quality of new business, strong

commitment to customer service and efforts to digitize premium collection and

policy servicing has resulted in an improvement in its renewal premium growth.

Exhibit 86: Trend in customer complaint has shown significant improvement

Customer complaints per 10,000 new policies

FY13

498

FY14

594

FY15

348

FY16

107

FY17

Source: Company, MOSL

Exhibit 87: HDFC has one of the best-in-class claim settlement ratio amongst private insurers

FY15

Number of policies from existing group customers

Total number of individual new business policies

Cross sell on group customer base (%)

10,508

659,672

1.6%

FY16

29,685

849,181

3.5%

FY17

46,959

851,536

5.5%

Sept'FY17

28,860

429,799

6.7%

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 88: HDFC has shown strong improvement in claim settlement ratio over past few years

Fiscal Year Ended March 31,

Settled

Repudiated

Rejected

Pending

Settled

Repudiated

Rejected

Pending

FY15

90.5%

5.9%

1.3%

2.3%

98.7%

1.1%

0.2%

FY16

95.0%

4.2%

0.2%

0.6%

99.5%

0.5%

0.0%

FY17

97.6%

1.9%

0.1%

0.5%

99.7%

0.3%

0.0%

Individual customers

Group customers

Six months Ended

September

FY17

94.1%

1.3%

0.1%

4.6%

98.2%

0.3%

0.0%

1.5%

Source: Company, MOSL

Exhibit 89: HDFC has one of the best-in-class claim settlement ratio amongst private insurers

99.2%

98.0%

97.2%

98.3%

96.9%

99.2%

HDFC Life

ICICI Pru life

SBI life

Max life

Bajaj Allianz Overall industry

Source: Company, MOSL

HDFCSL plans to leverage the large customer base, primarily from their group

business, to distribute and cross-sell individual insurance products. As on 1HFY18,

the company has insured more than 59m lives under various group products

(~19.8m lives insured in FY17 alone) and this vast customer pool is enabling them to

cross-sell other individual products and riders.

17 November 2017

HDFC Standard Life

Solvency ratio lower than peers; however robust profitability will support

business growth

HDFCSL’s solvency ratio (ratio of available solvency margin to required solvency

margin) remains lower than its peers at 192% as at FY17 though stands well above

the minimum requirement of 150%. However limited annual capital consumption

and strong internal accruals will support the company’s business growth over the

next few years. Also, migration to economic capital will further ease capital

requirements for the insurers, as the insurance industry in India is still savings

oriented and overall sum assured remains relatively low. The listing of the company

will further enable it to raise capital as and when needed to meet growth

requirements; tier-II bonds also remain a viable option of fund raising. The company

has been making healthy dividend payouts (~30% for FY17) and yet reporting

healthy EV growth as the insurance profits have been growing while the strain from

new business acquisition has declined.

Exhibit 90: Trend in solvency ratio

217.4

193.9

196.1

198.4

191.6

191.2

187.0

188.8

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Source: Company, MOSL

Exhibit 91: Trend in dividend payout

29.6

31.9

33.6

31.3

26.4

21.3

16.1

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 92: Trend in RoE, RoIC, Operating RoEV & RoEV

RoE

ROIC

Operating ROEV

ROEV

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Source: Company, MOSL

Earnings quality has been improving with steady growth in insurance

profits

HDFC Standard Life has been demonstrating an improvement in its earnings quality

with proportion of insurance profit in total net earnings increasing gradually over

past few years. Insurance profit as a percentage of profit after tax has thus

increased from 79.5% in FY15 to 84.7% in FY17 even as the shareholder net profit

has grown at a modest CAGR of 7% over FY14-17. We expect earnings growth to

pick up as the strain from new business subsides while the maturity of back book

helps release healthy provisioning. We thus expect HDFCSL to report an earnings

cagr of 15% over FY17-20E. We expect operating RoEV to sustain at healthy levels of

21% and new business margins to improve further to 22.7% by FY20E (22% in FY17).

Exhibit 93: Insurance profit as % of total PAT has been improving

Insurance Profit as a% of Total PAT

83.6%

84.8%

79.6%

FY15

FY16

FY17

Source: Company, MOSL

17 November 2017

HDFC Standard Life

SWOT analysis



One of the top 4 leading life insurance companies in India (~13% market

share), led by top notch management



Broad distribution network comprising, Wide range of product offering

catering to diverse customer classes



Strong and reputed brand which gives the company a distinct edge over

others.



Superior customer service and strong technological capability

Strength



High dependence on bancassurance channel for distribution



Agency channel is relatively weaker than other large private insurers

Weaknesses



Underpenetrated market in India provides enough headroom for

growth



Gain in market share on the back of strong product offering, superior

customer service and development of agency channel

Product innovation and further investments in digital platform will

sustain higher growth

Cross sell individual business to its large pool of group customer base

Opportunities



Dilution of largest distribution channel (banca) may adversely impact

business growth



High proportion of protection business may result in high claim incidence

in the event of a natural calamity or a major disaster



Increase in competitive intensity in its high margin group protection

business can adversely impact profitability and business growth

Threats

17 November 2017

HDFC Standard Life

Bull & Bear case

Bull Case



In our bull case we assume strong premium CAGR (FY17 – 20) of 32.3% (v/s 25%

in base case). We believe strong growth opportunities in an underpenetrated

market could surprise on the upside



We expect PAT CAGR of 12% (7.5% in base case), leading to average RoE/RoEV

of 23.8%/21.5% over FY18-20 (vs base case of 20.9%/20.9%)



Based on the above assumptions we value HDFC Life at INR456 (4.2x FY20 EV)

Bear Case



In our bear case we assume strong premium CAGR (FY17 – 20) of 25.8% (v/s 25%

in base case). Increasing competition and dilution in bancassurance channel

could lead to lower than expected growth



We expect PAT CAGR of 3% (7.5% in base case), leading to average RoE/RoEV of

15.7%/20.4% over FY18-20 (vs base case of 20.9%/20.9%)



Based on the above assumptions we value HDFC Life at INR259 (2.5x FY20 EV)

Exhibit 94:

Scenario Analysis – Bull Case

Bull Case

Total Premium

Total operation expenses

Surplus

PAT

PAT gr

NBP - APE

NBP margin

EPS, Rs

RoE (%)

Embedded Value

EVOP as % of IEV

RoEV (%)

FY18E

265,734

29,593

12,109

10,384

16.4

61,785

22.5

5.2

25.1

154.1

23.0

21.4

FY19E

342,621

38,228

13,439

10,931

5.3

85,817

22.6

5.4

23.0

185.6

23.7

21.3

FY20E

449,897

50,078

15,855

12,538

14.7

114,546

22.9

6.2

23.3

224.6

24.1

21.8

Exhibit 95:

Scenario Analysis – Bear Case

Bear Case

Total Premium

Total operation expenses

Surplus

PAT

PAT gr

NBP - APE

NBP margin

EPS, Rs

RoE (%)

Embedded Value

EVOP as % of IEV

RoEV (%)

FY18E

221,852

27,294

8,950

7,675

-14.0

51,582

22.0

3.3

18.5

145.1

19.2

FY19E

290,517

35,803

10,138

8,246

7.4

72,767

22.2

3.6

17.6

176.1

17.6

17.2

FY20E

387,411

47,623

12,207

9,653

17.1

98,637

22.6

4.3

17.9

214.6

17.1

16.8

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Sensitivity on key parameters

Exhibit 96: Sensitivity on key parameters

Scenario

An increase of 100 bps in the reference rates

A decrease of 100 bps in the reference rates

Equity values decrease by 10%

Equity values decrease by 20%

Implied swaption volatilities increase by 25%

Implied equity volatilities increase by 25%

10% increase in maintenance expenses

10% decrease in maintenance expenses

10% increase in acquisition expenses

10% decrease in acquisition expenses

10% increase in the discontinuance rates

10% decrease in the discontinuance rates

10% increase in mortality/ morbidity rates

10% decrease in mortality/ morbidity rates

HDFC life

ICICI Pru

Max life

SBI Life

% change % change % change % change % change % change % change % change in

in IEV

in VNB

in IEV

in VNB

in IEV

in VNB

in IEV

VNB

-1.9

0.1

-2

-6.2

3.6

1.9

-2.0

-4.1

-0.1

-0.8

0.8

-0.3

-0.5

-10

-0.5

0.5

-3.3

3.4

-1.1

1.1

Nil

-1.1

1.2

-0.8

0.8

-5.5

5.4

-20.5

20.5

-10.6

10.9

-6.1

6.1

-2

-1

-6

-5

Source: Company, MOSL

-1

-6

2.1

-1

-8

N/A

6.6

-1.7

-3.4

-0.8

-0.1

-0.7

0..7

N/A

-4.9

N/A

-2.4

-0.3

-2.9

2.6

-8.6

8.3

17 November 2017

HDFC Standard Life

Valuations attractive; robust return ratios will drive

stock performance



HDFC Life has delivered strong return ratios with average FY15-17 RoE/RoEV at

29%/21% respectively. We expect return ratios to remain strong on healthy new

business margins, quality underwriting, and strong cost control.

We note that the quality of earnings for HDFC Life has improved over the past

few years, as the share of investment income and surrender profits have both

declined. The company has wiped out its accumulated losses and is delivering

healthy return ratios, with RoE/RoIC of >30% and is thus capable of supporting

healthy business growth. We expect RoEV to sustain at an average of 19% over

FY17-20E and estimate FY20E EV at INR210b.

We expect the company to deliver new business margin of ~23% in FY20E (22%

in FY17) and new business value of INR18.3b, while operating RoEV sustains at

21%. This will be aided by further improvement in operating metrics (business

mix, persistency and cost).

We believe that the life insurance sector in India is in a sweet spot, where strong

structural potential is now overlapping with buoyant equity markets, rising

share of financial savings and higher disposable income. We expect Indian

insurers to trade at a premium to global insurers, though trading multiples

would vary with economic cycles. Over the medium term, the valuations of life

insurers would be a function of operating performance, growth and profitability.

We value HDFC Life using embedded value methodology. We value HDFC Life at

INR743b using P/EV multiple of 3.5x, which implies a price target of INR370 and

implies an upside of 28%. We initiate coverage with a BUY rating. We note that

our TP implies a new business multiple of 28x as per appraisal value

methodology. We believe that HDFC Life’s strong new business margins,

consistently healthy return ratios and stronger growth potential will enable it to

trade at a premium to other insurers.



17 November 2017

HDFC Standard Life

Exhibit 97: India Embedded Value

INR b

Opening EV

New Business Value

EVOP

Dividend payout

Closing EV

- Closing VIF

- Closing Networth

AUMs INRb

PAT INRb

EPS

FY13

48.2

6.0

9.6

58.7

41.8

16.9

401

4,515

6.6

FY14

58.7

6.6

11.1

(1.2)

69.9

49.8

20.1

506

7,253

3.6

FY15

69.9

5.9

15.3

(1.7)

88.1

60.2

27.9

670

7,855

3.9

FY16

88.1

7.4

18.4

(2.2)

102.3

69.4

32.9

742

8,183

4.1

FY17

102.3

9.1

21.5

(2.4)

123.9

82.5

41.4

917

8,921

4.5

FY18E

123.9

11.4

26.6

(3.0)

148.5

97.7

51.6

1,102

9,466

4.7

FY19E

148.5

14.8

31.7

(3.6)

176.8

114.6

63.0

1,324

10,785

5.4

FY20E

176.8

18.3

37.3

(4.2)

210.0

133.5

78.9

1,603

13,504

6.7

Source: Company, MOSL

Exhibit 98: Key Metrics

New Business APE growth

New Business margin

Operating RoEV (%)

RoEV (%)

RoE (%)

RoIC (%)

Dividend %

Dividend payout ratio (%)

Solvency ratio (%)

FY13

12.7%

19.9%

21.8%

39.7%

21.7%

217%

FY14

-22%

15.2%

18.9%

19.1%

43.4%

33.6%

16%

194%

FY15

26%

18.5%

21.9%

26.1%

34.4%

36.4%

21%

196%

FY16

14%

19.9%

20.9%

16.1%

28.5%

37.8%

26%

198%

FY17

13%

22.0%

21.0%

21.1%

25.5%

41.0%

11%

30%

192%

FY18E

27%

22.3%

21.5%

19.9%

22.7%

41.8%

13%

32%

191%

FY19E

28%

22.4%

21.3%

19.0%

22.2%

46.1%

15%

34%

187%

FY20E

24%

22.7%

21.1%

18.8%

23.8%

57.7%

18%

31%

189%

Source: Company, MOSL

Exhibit 99: Fair value calculation

INR b

RoEV

RoE (%)

Embedded value

Appraisal Value

Fair value / Embedded value

Number of shares, mn

Valuation per share

Implied P/E multiple

Implied new business multiple

Issue price, INR

Upside

FY20E

19%

24%

210

743

3.4

2,009

370

53.5

290

28%

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 100: Valuation comparison across Asian peers

China Life (CNY)

Return on Common Equity (%)

Return on Assets (%)

Return on Capital (%)

Return on Invested Capital (%)

EPS

EV (b)

Mcap (b)

Price

Price Earnings Ratio (P/E) (x)

Price to EV (x)

FY16

11.4

1.5

9.5

8.7

1.2

11.4

560.3

FY17

6.1

0.7

6.4

10.2

0.7

10.7

652.1

1,010.6

26.7

40.4

1.5

China Taiping (HKD)

FY16

12.6

1.4

7.7

10.9

1.9

16.6

92.0

FY17

7.8

1.0

6.1

11.4

1.3

15.6

87.4

106.2

23.4

1.2

Ping An Insurance (CNY)

FY16

17.4

1.2

2.6

7.1

3.0

18.3

325.5

FY17

17.4

1.2

3.7

47.9

3.5

21.0

360.3

1,480.4

22.0

4.1

Source: Company, MOSL

Exhibit 101: Valuation comparison across listed players

HDFC Life Ins.

FY2016

FY2017

28.5

25.5

37.8

41.0

20.9

21.0

16.1

21.1

4.1

4.5

102.3

123.9

290

70.7

64.9

5.7

4.7

79%

64%

68%

67%

SBI Life Ins.

FY2016

FY2017

19.6

18.6

86.1

95.5

19.0

23.0

0.0

21.4

8.6

9.5

130.0

165.4

649.0

649

75.5

68.1

5.0

3.9

81%

67%

58%

ICICI Pru

FY2016

FY2017

31.2

28.7

34.3

34.8

15.3

16.5

0.8

16.1

11.5

11.7

139.4

161.8

546.3

381

33.0

32.4

3.9

3.4

52%

44%

60%

58%

MAX

FY2016

17.9

21.5

22.1

17.0

11.5

56.2

FY2017

18.8

29.1

33.2

19.9

17.3

67.4

147.1

548

32.0

3.2

34%

62%

RoE (%)

RoIC (%)

EVOP as % of IEV

RoEV (%)

EPS (INR)

EV (INRb)

Mcap (INRb)

Price (INR)

P/E

P/EV

P/AUM

VIF as a % of AUM

48.1

3.8

41%

63%

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Key risks

High dependence on bank for new business sales

HDFC Bank accounts for ~61% of HDFC Life’s new business sales. This is much higher

than the average bancassurance contribution for other large private bancassurers.

HDFC Bank has recently tied up with other life insurance companies and this may

have an impact on HDFC Life’s business growth. Inability to scale up the agency

channel will also impact premium growth and hence valuations.

Subdued equity markets or excessive volatility in interest rates

ULIPs contribute ~47% of HDFC Life’s new business sales and the sale of ULIPs is

highly correlated with equity markets. Subdued equity markets or excessive

volatility in interest rates may impact investment returns and growth.

Higher competition in protection business

HDFC Life currently has one of the highest new business margins owing to its larger

share of protection business. Pick-up in competitive intensity may result in it losing

market share in this business which will adversely impact margins.

17 November 2017

HDFC Standard Life

Exhibit 102: Snapshot

HDFC Life

FY16

FY17

Profit and Loss matrix (INR m)

Operating Profit

Surplus / Deficit

PAT (Shareholder's a/c)

Premium (INR m) & growth (%)

New business prem – wrp

Total premium – unwtd

Market share

New business growth – wrp

Total prem growth – unwtd

New business mix – wrp (%)

Participating

Non-participating

ULIPs

Operating ratios (%)

Investment yield (%)

Commissions / GWP

Total expense ratio

Solvency margin

Persistency ratios (%)

13th Month

25th Month

49th Month

61st Month

Valuation ratios and other data points

NBP margin (%)

RoE (%)

RoIC (%)

Total AUMs, INRb

RoEV (%)

Operating RoEV (%)

Dividend (%)

Dividend payout ratio (%)

EPS, INR

Embedded Value, INRb

P/E (x)

P/EV(x)

P/AUM

VIF as a % of AUM

154,644

9,597

8,183

36,156

64,872

4.7%

13.5%

18.1%

26.8%

20.5%

52.8%

2.5%

4.3%

15.8%

198.4%

79.0%

67.0%

63.0%

50.0%

19.9%

28.5%

37.8%

742

16.1%

20.9%

9.0%

26.4%

4.1

102.3

70.7

5.7

79%

68%

273,421

9,476

8,921

40,852

86,964

5.0%

13.0%

34.1%

25.9%

27.4%

46.7%

12.6%

4.1%

16.3%

191.6%

81.0%

73.0%

58.0%

57.0%

22.0%

25.5%

41.0%

917

21.1%

21.0%

11.0%

29.6%

4.5

123.9

64.9

4.7

64%

67%

ICICI Life

FY16

FY17

177,018

14,124

16,505

51,085

67,658

4.9%

9.9%

26.9%

11.4%

13.6%

75.1%

1.2%

3.2%

13.1%

320.0%

82.4%

71.2%

62.2%

46.0%

8.0%

31.2%

34.3%

1,039

0.8%

15.3%

84.0%

87.7%

11.5

139.4

33.0

3.9

52%

60%

340,640

11,527

16,822

64,862

77,604

4.5%

27.0%

14.7%

11.7%

13.6%

74.8%

13.0%

3.4%

13.9%

3.4%

85.7%

73.9%

59.3%

56.2%

10.1%

28.7%

34.8%

1,229

16.1%

16.5%

73.5%

39.5%

11.7

161.8

32.4

3.4

44%

58%

Max India

FY16

FY17

83,708

4,632

4,391

21,627

28,817

2.1%

8.7%

12.0%

62.6%

13.0%

24.4%

4.2%

8.9%

22.5%

343.0%

78.8%

66.6%

55.6%

42.7%

17.9%

21.5%

22.1%

364

6.9%

17.0%

136.6%

100.0%

11.5

56.2

48.1

3.8

41%

63%

115,546

-1,721

6,599

27,485

36,664

2.1%

27.1%

27.2%

61.4%

13.7%

24.9%

9.1%

8.7%

23.4%

309.0%

80.4%

70.4%

54.9%

53.0%

18.8%

29.1%

33.2%

444

16.6%

19.9%

52.5%

25.5%

17.3

67.4

32.0

3.2

34%

62%

SBI Life

FY16

FY17

169,482

6,642

8,610

48,781

71,066

5.1%

37.4%

28.5%

27.7%

28.7%

43.6%

4.6%

4.5%

13.7%

212.0%

80.0%

72.1%

77.2%

50.6%

16.0%

19.6%

86.1%

798

19.0%

12.0%

16.8%

8.6

130.0

75.5

5.0

81%

277,959

6,543

9,547

66,009

101,439

5.8%

35.3%

42.7%

22.9%

29.3%

47.8%

10.2%

3.7%

11.6%

204.0%

80.6%

73.0%

65.0%

68.1%

15.4%

18.6%

95.5%

977

21.4%

23.0%

15.0%

18.9%

9.5

165.4

68.1

3.9

67%

58%

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Annexure

Exhibit 103: Global life insurance premium statistics

America

Europe

Asia

Africa

Oceania

World

Life insurance premium volume Share of world market (in %)

FY14

FY15

FY16

FY14

FY15

FY16

6,55,604 6,68,037 6,78,034

24.7

26.4

25.9

10,02,728 8,72,115 8,58,607

37.8

34.4

32.8

8,92,318 9,04,569 10,00,268

33.6

35.7

38.2

45,796

43,704

40,571

1.7

1.6

58,103

45,393

39,537

2.2

1.8

1.5

26,54,549 25,33,818 26,17,016 100.0

100.0

Premiums in % of GDP

FY14

FY15

FY16

2.6

2.7

4.1

4.2

4.0

3.6

3.7

1.9

2.0

1.8

3.4

3.2

2.7

3.4

3.5

Premiums per capita

FY14

FY15

FY16

674

677

680

1,138

987

962

209

210

229

1,509

1,166

1,001

368

346

353

Source: SwissRe, MOSL

Exhibit 104: Global life insurance premium volume and business mix

Life premium

Countries

Australia

Brazil

France

Germany

Russia

South Africa

Switzerland

United Kingdom

United States

Asian Countries

Hong Kong

India

Japan

Malaysia

Pakistan

PR China

Singapore

South Korea

Sri Lanka

Taiwan

Thailand

World

36,856

55,299

3,71,588

10,231

1,255

1,76,950

15,543

1,01,572

366

79,156

13,297

26,54,549

89.8

79.1

77.5

64.5

60.5

53.9

57.6

63.7

43.0

82.8

61.3

55.6

1.4

2.1

14.0

0.4

0.1

6.7

0.6

3.8

0.0

3.0

0.5

100.0

41,255

56,675

3,43,816

9,588

1,451

2,10,763

16,258

98,218

383

79,627

14,619

25,33,818

Premium

volume

(USDm)

56,151

44,980

1,72,761

1,18,475

2,828

39,785

36,094

2,35,321

5,28,221

FY14

Share of

total

world

business (%) market (%)

63.8

2.1

52.6

63.9

46.5

11.0

80.9

55.3

67.0

41.3

1.7

6.5

4.5

0.1

1.5

1.4

8.9

19.9

Premium

volume

(USDm)

43,663

37,106

1,50,143

96,725

2,129

37,526

33,916

2,14,492

5,52,506

FY15

Share of

total

world

business (%) market (%)

61.9

1.7

53.7

65.1

45.4

12.7

81.7

55.3

67.0

42.0

90.2

79.0

76.5

66.8

66.5

54.5

58.1

63.9

43.0

83.0

67.4

55.6

1.5

5.9

3.8

0.1

1.5

1.3

8.5

21.8

1.6

2.2

13.6

0.4

0.1

8.3

0.6

3.9

0.0

3.1

0.6

100.0

Premium

volume

(USDm)

37,692

41,005

1,52,817

94,661

3,217

33,890

31,151

1,99,369

5,58,847

51,940

61,817

3,54,053

9,189

1,773

2,62,616

17,557

1,04,169

440

84,493

15,131

26,17,016

FY16

Share of

total

world

business (%) market (%)

45.9

1.4

56.4

64.3

44.0

18.3

80.8

53.4

65.5

41.3

92.0

77.9

75.1

66.0

70.3

56.3

83.5

61.0

46.4

83.3

68.6

55.3

1.6

5.8

3.6

0.1

1.3

1.2

7.6

21.4

2.0

2.4

13.5

0.4

0.1

10.0

0.7

4.0

0.0

3.2

0.6

100.0

Source: SwissRe, MOSL

17 November 2017

HDFC Standard Life

Exhibit 105: AUM Mix as on FY17

INRm

Government Securities

Corporate Bonds:

AAA

AA / AA+

AA- or Below

Equity Shares

Preference Shares

Fixed Deposit with Banks

Mutual Fund Units - Liquid schemes

Money Market Instruments

Others2

Total

286,526

205,317

181,600

20,072

3,645

376,344

1,332

840

36,840

HDFC life

31.2%

22.4%

19.8%

2.2%

0.4%

41.0%

0.1%

4.0%

Total

322,530

185,930

ICICI pru

26.2%

15.1%

Total

447,342

SBI Life

45.8%

17.7%

4.3%

1.0%

23.7%

1.0%

1.6%

3.2%

1.8%

100.0%

172,506

41,831

9,480

568,340

12,230

47,740

60,600

31,820

122,9190

46.2%

1.0%

3.9%

4.9%

2.6%

100.0%

231,148

10,165

15,540

31,471

17,788

977,370

10,225

917,424

1.1%

100.0%

Source: Company, MOSL

Exhibit 106: Milestone for HDFC life

Fiscal

FY01

FY03

FY04

FY07

FY10

FY11

FY12

FY14

FY16

FY18

Particulars

First private life insurer to obtain registration from the IRDAI

Crossed 100,000 policies and 10,000 individual agents; distribution tie-ups with HDFC Bank and other banks

Launch of unit linked funds; distribution tie-up with Saraswat Co-operative Bank Limited

Crossed the 500,000 policy milestone

AUM crossed Rs FY0,000 million

Incorporated our Subsidiary, HDFC Pension on June FY, FY11

Our Company turned profitable, and registered a profit of Rs 2,710 million and the total premium for the year crossed Rs

100,000 million

Company’s AUM crossed Rs 500,000 million; dividend was declared for the first time in December, FY13

Total premium crossed the Rs160,000 million mark

Our Subsidiary, HDFC International was authorised by Dubai Financial Services Authority to carry on financial services

Standard Life Mauritius increased its stake from 26% to 35%

Company’s AUM crossed Rs 1,000,000 million

Source: Company, MOSL

17 November 2017

HDFC Standard Life

Exhibit 107: Glossary of key terms

Term

Annualised Premium

Equivalent

New Business

Profit Margin

Cost over-runs

Embedded Value

Value in force

Value of new business

Market Consistent

Embedded Value

Fair value change account

Funds for discontinued

policies

Funds for Future

Appropriations

Abbreviation Explanation



The sum of annualized first year premium and 10% weighted single premiums including top-

APE

up premiums.



A measure of profitability computed as the present value of future profits expected on the

NBM

business sourced in a particular period and denoted as a percentage of APE.



It is the cost incurred by the company over & above what is factored in the declared NBP

margin.



EV is the value of the company's existing business. It is taken as a summation of Invested

capital, retained earnings & VIF - Essentially value of the company if it stops writing new

business.



VIF is the present value of future profits which are yet to arise from the policies existing on

VIF

book (policies in force).



It is the absolute figure of present value of future profits expected on the business sourced in

VNB

the current year. From analytical viewpoint, VNB is calculated in two tranches - pre and post

over-run.



The present value of shareholders’ interests in insurance business, using market consistent

methodology, where an explicit allowance for risk in the business is made. Over here, VIF

MCEV

component of the EV uses risk-free rate as the discount rate. VIF is separately adjusted for the

risks and other costs.



Unrealised gains/losses (net) on mark to market securities pertaining to Shareholders’ and

Non-Linked Policyholders’ funds, as required by the IRDA of India (Preparation of Financial

Statements and Auditor’s Report of Insurance Companies) Regulations, 2002.



The liability of the discontinued unit linked policies which are within the lock in period of five

years from the date of issue is held in this fund.



The FFA for participating business represents the surplus which is not allocated to the

Policyholders’ or Shareholders’ funds as at the Balance Sheet date.

FFA

The FFA for the linked segment represents surplus on the lapsed policies unlikely to be

revived. This surplus is required to be held within the Policyholders’ funds till the time

policyholders are eligible for revival of their policies.

Under these products, surplus arising from the business is distributed between the

policyholders and shareholders. In India, 90% the surplus is transferred to the policyholders

and 10% is retained by shareholders

Policyholders are assured a minimum guaranteed return under these products. Any surplus

arising is taken by shareholders.

Non-Participating insurance contracts that are investment cum protection plans that provide

returns directly linked to the market performance. The policyholder bears the investment

risk/return.

This ratio means % of policies which continue in a particular year v/s the previous year. It is

calculated by taking renewal premium of the current financial year to the total of first year

premium and renewal premium of the previous financial year.

The proportion of business retained from the business underwritten. The ratio is measured in

terms of number of policies and premiums underwritten. E.g. 37th month persistency is at

60% means 60 policies are in force today out of 100 policies sold 3 yrs back.

It is the capital required by an insurance company to run its business smoothly taking into

account the portfolio of its policies. In India, the regulations demand it be 150% of the

requirement.

Source: Company, MOSL



Participating products

Non-participating products

Unit Linked Products

Conservation ratio



Persistency ratio



Solvency ratio

PAR

Non PAR

ULIP



17 November 2017

HDFC Standard Life

Financials and valuations: HDFC standard life insurance

Technical account (INR m)

Gross Premiums

Reinsurance Ceded

Net Premiums

Income from Investments

Other Income

Total income

Commission

Operating expenses

Prov for doubtful debts

Operating Profit

Prov for Tax

Benefits Paid (Net)

Chg in reserves

Surplus / Deficit

Shareholder's a/c (INRm)

Transfer from technical a/c

Income From Investments

Total Income

Other expenses

Contribution to technical a/c

Total Expenses

PBT

Prov for Tax

PAT

Premium (INRm) & growth (%)

New business prem - unwtd

New business prem - WRP

Renewal premium

Total premium - unwtd

New bus. growth - unwtd

New business growth - APE

Renewal premium growth

Total prem growth - unwtd

Premium mix (%)

New business - unwtd

- Individual mix

- Group mix

New business mix - WRP

- Participating

- Non-participating

- ULIPs

Total premium mix - unwtd

- Participating

- Non-participating

- ULIPs

Individual prem sourcing mix (%)

Individual agents

Corporate agents-Banks

Direct business

Others

FY15

1,48,299

(674)

1,47,625

1,22,495

789

2,70,908

6,235

14,890

1,507

2,48,277

1,193

82,339

1,56,525

8,220

FY15

6,709

2,009

8,718

206

467

672

8,046

191

7,855

FY15

54,921

31,843

93,378

1,48,299

36.0%

26.2%

16.4%

22.9%

FY15

60.3%

39.7%

19.6%

20.8%

59.6%

24.9%

19.0%

56.1%

FY15

16.5%

67.0%

10.0%

6.6%

FY16

1,63,130

(1,342)

1,61,788

17,906

972

1,80,665

7,018

18,718

285

1,54,644

3,347

82,419

59,281

9,597

FY16

7,181

1,688

8,975

214

380

626

8,349

166

8,183

FY16

64,872

36,156

98,258

1,63,130

18.1%

13.5%

5.2%

10.0%

FY16

56.4%

43.6%

27.1%

18.2%

54.7%

26.8%

20.5%

52.8%

FY16

13.5%

68.1%

12.0%

6.4%

FY17

1,94,455

(1,706)

1,92,749

1,11,406

1,389

3,05,544

7,920

23,853

350

2,73,421

3,394

1,00,004

1,60,548

9,476

FY17

7,863

2,269

10,132

680

354

991

9,141

220

8,921

FY17

86,964

40,852

1,07,491

1,94,455

34.1%

13.0%

9.4%

19.2%

FY17

48.3%

51.7%

30.5%

20.1%

49.4%

25.9%

27.4%

46.7%

FY17

15.5%

61.1%

14.8%

8.6%

FY18E

2,33,357

(2,132)

2,31,225

98,536

1,926

3,31,687

11,295

27,494

423

2,92,475

4,109

1,13,906

1,63,581

10,878

FY18E

7,965

2,935

10,901

728

407

1,091

9,809

343

9,466

FY18E

1,13,053

51,893

1,20,305

2,33,357

30.0%

27.0%

11.9%

20.0%

FY18E

55.0%

45.0%

31.0%

23.0%

46.0%

26.3%

31.3%

42.3%

FY18E

17.5%

59.6%

15.8%

7.1%

FY19E

2,85,300

(2,767)

2,82,532

1,13,267

2,473

3,98,272

13,432

33,655

547

3,50,639

4,777

1,37,304

1,95,900

12,657

FY19E

9,209

3,321

12,529

815

488

1,260

11,269

485

10,785

FY19E

1,44,707

66,680

1,40,592

2,85,300

28.0%

28.5%

16.9%

22.3%

FY19E

58.0%

42.0%

31.0%

23.7%

45.3%

26.3%

33.3%

40.4%

FY19E

19.5%

57.3%

16.4%

6.8%

FY20E

3,53,129

(3,549)

3,49,580

1,39,955

2,973

4,92,508

16,252

41,540

723

4,33,993

5,800

1,66,007

2,46,497

15,688

FY20E

11,651

4,144

15,795

937

610

1,504

14,290

786

13,504

FY20E

1,82,331

82,840

1,70,798

3,53,129

26.0%

24.2%

21.5%

23.8%

FY20E

62.0%

38.0%

31.3%

24.1%

44.6%

27.1%

34.6%

38.3%

FY20E

22.4%

52.6%

17.5%

7.5%

17 November 2017

HDFC Standard Life

Financials and valuations: HDFC standard life insurance

Balance sheet (INR m)

Sources of Fund

Share Capital

Reserves And Surplus

Shareholders' Fund

Policy Liabilities

Prov. for Linked Liab.

Funds For Future App.

Current liabilities & prov.

Total

Application of Funds

Shareholders’ inv

Policyholders’ inv

Assets to cover linked liab.

Loans

Fixed Assets

Current assets

Total

Operating ratios (%)

Investment yield

Commissions / GWP

- first year premiums

- renewal premiums

- single premiums

Operating expenses / GWP

Total expense ratio

Claims / NWP

Solvency ratio

Persistency ratios (%)

13th Month

25th Month

37th Month

49th Month

61st Month

Profitability ratios (%)

NBP margin (%)

RoE (%)

RoIC (%)

EVOP as % of IEV

RoEV (%)

Valuation ratios

Total AUMs (INRb)

- of which equity AUMs (%)

Dividend %

Dividend payout ratio (%)

EPS, INR

Value of new business (INRb)

Embedded Value (INRb)

VIF as % of EV

Mkt. cap/AUM (%)

P/EV (x)

P/EPS (x)

FY15

19,949

5,990

25,919

1,93,405

4,49,203

4,641

20,681

6,93,849

21,962

1,99,085

4,49,203

1,256

4,020

18,323

6,93,849

18.9%

4.2%

17.0%

1.3%

0.2%

10.0%

14.2%

55.3%

196%

73.3%

64.0%

65.1%

64.2%

37.4%

18.5%

34.4%

36.4%

22.9%

26.1%

670

48%

21%

3.9

5.9

88.1

68%

87%

6.6

73.6

FY16

19,953

12,046

31,586

2,44,543

4,57,270

7,055

26,011

7,66,465

26,402

2,58,629

4,57,270

931

3,964

19,270

7,66,465

2.5%

4.3%

17.4%

1.2%

0.1%

11.5%

15.8%

50.5%

198%

79.0%

67.0%

60.0%

63.0%

50.0%

19.9%

28.5%

37.8%

20.7%

16.1%

742

40%

26%

4.1

7.4

102.3

68%

79%

5.7

70.7

FY17

19,985

18,079

38,387

3,27,801

5,38,005

8,668

38,201

9,51,061

32,456

3,46,915

5,38,005

479

3,529

29,677

9,51,061

12.6%

4.1%

18.1%

1.3%

0.1%

12.3%

16.3%

51.1%

192%

81.0%

73.0%

64.0%

58.0%

57.0%

22.0%

25.5%

41.0%

21.7%

21.1%

917

41%

11%

30%

4.5

9.1

124.7

67%

64%

4.7

64.9

FY18E

20,090

24,523

44,935

4,21,441

6,07,945

11,702

57,301

11,43,325

39,134

4,54,859

6,07,945

584

3,706

37,097

11,43,325

9.3%

4.8%

20.5%

1.5%

0.4%

11.8%

16.6%

48.5%

191%

81.8%

74.6%

67.6%

59.6%

56.0%

22.3%

22.7%

41.8%

21.5%

19.9%

1,102

44%

13%

32%

4.7

11.4

148.5

66%

53%

3.9

61.5

FY19E

20,090

31,680

52,093

5,50,467

6,74,819

15,212

84,233

13,76,825

49,413

5,99,481

6,74,819

736

4,150

48,226

13,76,825

8.9%

4.7%

19.2%

1.4%

0.4%

11.8%

16.5%

47.8%

187%

82.1%

75.2%

68.6%

61.0%

56.3%

22.4%

22.2%

46.1%

21.3%

19.0%

1,324

45%

15%

34%

5.4

14.8

176.8

65%

44%

3.3

54.0

FY20E

20,090

40,953

61,366

7,29,483

7,42,301

19,776

1,13,715

16,66,640

65,702

7,95,081

7,42,301

912

4,773

57,871

16,66,640

9.1%

4.6%

18.5%

1.4%

0.5%

11.8%

16.4%

46.7%

189%

82.2%

75.5%

68.9%

61.4%

56.6%

22.7%

23.8%

57.7%

21.1%

18.8%

1,603

45%

18%

31%

6.7

18.3

210.0

64%

36%

2.8

43.1

17 November 2017

REPORT GALLERY

RECENT INITIATING COVERAGE REPORTS

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock

broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed

public company, the details in respect of which are available on

www.motilaloswal.com.

MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock

Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Metropolitan Stock Exchange Of India Ltd. (MSE) for its stock broking activities & is Depository participant with Central Depository Services Limited

(CDSL) & National Securities Depository Limited (NSDL) and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are

available on the website at

http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf

HDFC Standard Life

NOTES

Pending Regulatory Enquiries against Motilal Oswal Securities Limited by SEBI:

SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold

inquiry and adjudge violation of SEBI Regulations; MOSL requested SEBI to provide all documents, records, investigation report relied upon by SEBI which were referred in Show Cause Notice and also sought personal

hearing. The matter is currently pending.

MOSL, it’s associates, Research Analyst or their relative may have any financial interest in the subject company. MOSL and/or its associates and/or Research Analyst may have beneficial ownership of 1% or more securities in

the subject company at the end of the month immediately preceding the date of publication of the Research Report.

MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a)

from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and

earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other

potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s),

as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the

research report.

Research Analyst may have served as director/officer, etc. in the subject company in the last 12 month period. MOSL and/or its associates may have received any compensation from the subject company in

the past 12 months.

In the last 12 months period ending on the last day of the month immediately preceding the date of publication of this research report, MOSL or any of its associates may have:

managed or co-managed public offering of securities from subject company of this research report,

received compensation for investment banking or merchant banking or brokerage services from subject company of this research report,

received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company of this research report.

Subject Company may have been a client of MOSL or its associates during twelve months preceding the date of distribution of the research report.

MOSL and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report. To enhance transparency, MOSL has incorporated a Disclosure

of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report. MOSL and / or its affiliates do and seek to do business including investment banking with

companies covered in its research reports. As a result, the recipients of this report should be aware that MOSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research

Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

Terms & Conditions:

This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to,

copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOSL. The report is based on the facts, figures and information that are considered

true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not

been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice.

The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though

disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by virtue of their receiving this report.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or

indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Disclosure of Interest Statement

Analyst ownership of the stock

HDFC Life

A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary

trading desk of MOSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to

subject company for which Research Team have expressed their views.

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law,

regulation or which would subject MOSL & its group companies to registration or licensing requirements within such jurisdictions.

For Hong Kong:

This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC)

pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with

Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any

investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities,

products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research

Analysis in Hong Kong.

For U.S.

Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is

not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States.

Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S.

persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional

investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional

investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and

interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S.

registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and

therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore

Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a

subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in

the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following

representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

Disclaimer:

The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person

or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of

offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or

appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations

as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to

determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative

products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of

the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the

views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time

without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities

mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities

functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already

available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is

being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not

directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would

be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to

certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or

representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.

The

person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or

employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this

information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring

Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:

na@motilaloswal.com,

Contact No.:022-30801085.

Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;

MSE(F&O): INF261041231; MSE(CD): INE261041231; CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset

Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth

management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities

Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products

17 November 2017