Update | Sector: Financials
12 Annual Global Investor Conference
th
HDFC Life
Mr Amitabh Chaudhary
MD and CEO
HDFC Life
Thematic
Presentation
Focus on “profitable growth”
Diversified product mix and strong distribution key strengths
We hosted Mr Amitabh Chaudhary, MD and CEO of HDFC Life as part of CEO Track at our
conference. Here are the key takeaways from his presentation.
HDFC Life has consistently adapted with changes in the life insurance space and has
emerged stronger. It enjoys (a) high persistency and conservation ratios, (b) diversified
product mix, (c) strong distribution, and (d) highest NBAP margins.
Post-merger with Max Life, it will become the largest private sector insurer, with (a) a
market share of ~11% (22-24% in private space), (b) diversified distribution platform,
and (c) wider product portfolio.
Merger synergies are likely to improve ROEV and NBAP margins, which are already
best-in-class at ~17% and ~20%, respectively. The merger process is expected to be
completed in 12-15 months.
Favorable macro backdrop; private sector market share back to 50%
The Indian life insurance industry is underdeveloped, with (a) insurance premium to
GDP of just 2.7% (7% of GDP v/s 5-15% for Singapore, Japan, Hong Kong and
Taiwan), (b) huge protection gap of 92%+ (opportunity size of USD8.55b as of 2014),
which is the highest in the region, (c) life insurance density of just USD43 v/s
USD153 in China. Other macroeconomic factors like increasing urbanization, high
savings rate, increasing awareness for protection products and demography will also
help in insurance premium growth at least in line with nominal GDP growth. Most
changes in regulations related to products and distribution are behind. For private
players, double-digit growth is back and market share has increased from 37% in
FY14 to 50%.
Larger players should gain significantly
Merger with Max Life will make the combined entity India’s largest private sector
life insurance company. The top-7 private players out of 23 have 77% of the
business v/s ~59% in FY11. The top-3 private players also contribute ~70% of the
private insurance space profitability. HDFC Life has a well-diversified product
portfolio, strong distribution platform, robust profitability and adequate
capitalization. It is likely to grow faster than the industry and its profitability would
be the highest. Insurance premium growth is expected to be 15%+ and large private
players would continue to gain market share at the cost of LIC and small private
insurance companies.
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com)
Krishnan ASV
(A.Krishnan@MotilalOswal.com);+9122 61291571/Rahul
Gupta
(rahul.pgupta@MotilalOswal.com); +9122 61291544
September 2016
1
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

HDFC Life
12 Annual Global Investor Conference
th
Merger with Max Life to strengthen distribution and product mix
Post-merger, the share of par business in HDFC Life’s overall business would
increase from 30% to 42%, making it the second-largest after LIC. The share of ULIP
business (high dependence on equity markets) would decline from 56% to 45%. On
the distribution side, the share of bancassurance-led sourcing would remain high at
~67% (v/s 71% pre-merger); however, the share of HDFC Bank would decline to
~50%. Share of the agency channel (Max’s expertise) would increase from 13% to
19%, and the share of direct channels would be largely stable at ~11%. The
combined entity’s highly diversified product and distribution mix would be
advantageous from the growth and profitability perspective.
Merged entity to trade at premium valuations
The key strengths of HDFC Life (post-merger) would be (a) strong parentage, (b)
strong banca partners – has 66 relationships, including for group business, with 17
banks, 41 NBFCs (23 MFIs), 9 SFBs (4 are exclusive), (c) efficient technology platform
– analytics, robotics, artificial intelligence, etc; 70% of applications originated and
closed on mobile platform; second-best in online business, (d) diversified product
mix, and (‘e) strong profitability – NBAP margin of ~20%. We expect these strengths
to keep valuations at premium to peers. Based on CMP of Max Life, the market cap
of the combined entity is ~INR700b (3.5x FY18E EV; 35x NBAP multiple).
Other highlights related to Max deal
No new addition to the board of HDFC Life post-merger
Axis Bank to remain a partner till 2021 as per current arrangement
Transaction likely to be completed in 12-15 months
Touch-point presence to increase to 15k+ from 12k+ currently
Number of products to increase from the current 48 to 85+; management is
looking to rationalize some products in merged entity
Application to IRDA and CCI should be done by September 15, 2016
September 2016
2

HDFC Life
12 Annual Global Investor Conference
Exhibit 1:
HDFC Life - EV and ROEV progression
EV (INR Bn)
ROEV (%), RHS
28.3
21.8
18.9
14.5
42.1
FY11
48.2
FY12
58.7
FY13
69.9
FY14
88.1
FY15
th
Exhibit 2:
HDFC Life - RoIC and RoE
ROIC
44.7
35.1
37.8
28.7
ROE
21.1
15.1
102.3
FY16
33.6
36.4
FY14
FY15
FY16
Source: MOSL, Company
Source: MOSL, Company
Exhibit 3:
HDFC Life - Product mix progression
ULIPs
1
13
1
43
86
56
3
36
Par
Non-Par
15
36
17
21
15
30
Exhibit 4:
HDFC Life – Individual distribution mix evolution
Agency
3
65
1
31
FY11
4
Broker
5
Corporate Agents
7
8
Direct
8
73
72
70
73
76
61
49
FY14
62
55
4
19
FY12
7
16
FY13
7
16
FY14
5
14
FY15
4
12
FY16
FY11
FY12
FY13
FY15
FY16
Source: MOSL, Company
Source: MOSL, Company
Exhibit 5:
Persistency ratio (reducing balance method)
FY13
FY14
FY15
FY16
Exhibit 6:
Conservation ratio
Conservation Ratio (%)
90
80
80
80
79
79
13th Month 25th Month 37th Month 49th Month 61st Month
Source: MOSL, Company
FY11
FY12
FY13
FY14
FY15
FY16
Source: MOSL, Company
September 2016
3

HDFC Life
12 Annual Global Investor Conference
Exhibit 7:
Merged entity – Financials snapshot
Merged ROEV of ~17.4%,
with cost overrun coming
down and merger synergy
playing out – expect it to
improve to ~18%
FY16
INR m
NBAP (Pre-overruns)
NBAP (Post-overruns)
APE
Embedded value
Pre-cost NBAP (%)
Post-cost NBAP (%)
RoEV (%)
Product Mix (%)
PAR
Non PAR
Linked
Distribution Mix (%)
Individual Agency
Bancassurance
Others
HDFC Life
7,866
6,599
33,330
102,050
23.6
19.8
18.3
Max Life
3,880
3,780
21,130
56,170
18.4
17.9
15.7
Merged
11,746
10,379
54,460
158,220
21.6
19.1
17.4
th
30
15
55
61
12
27
42
14
44
13
68
18
28
58
15
19
64
17
Source: MOSL, Company
Exhibit 8:
Combined entity will have ~1/4 of the private sector market share
Combined entity to be the
second largest life insurer in
India and largest private
sector life insurance
company
Individual APE Market Share (%)
HDFC Life (merged)
ICICI Pru Life
SBI Life
HDFC Life
Max Life
Kotak Old Mutual
PNB Metlife
Reliance Life
Bajaj Allianz
Birla Sunlife
Tata AIA
Exide Life
Canara HSBC
Shriram Life
Star Union Daiichi
Bharti AXA
IDBI Federal
IndiaFirst
Aviva
DHFL Pramerica
Edelweiss Tokio
Aegon Religare
Future Generali
Sahara
Private Sector
LIC
FY12
24.1
16.1
12.0
15.5
8.6
2.7
2.9
6.3
7.5
6.7
3.5
3.5
2.7
0.9
1.6
1.1
1.2
1.1
2.8
0.5
0.1
1.1
1.4
0.3
36.5
63.5
FY13
26.0
18.5
13.4
17.5
8.5
2.6
3.1
5.5
6.9
5.8
1.7
2.9
2.0
1.1
1.5
1.2
1.4
1.4
2.3
0.8
0.2
0.7
0.9
0.2
38.0
62.0
FY14
24.0
18.9
16.3
13.8
10.2
2.7
3.3
6.5
5.8
4.9
1.4
2.9
1.6
1.1
2.0
1.7
1.5
0.9
1.8
0.6
0.4
0.8
0.8
0.2
38.0
62.0
FY15
24.6
23.0
15.6
14.8
9.7
3.1
3.6
6.0
3.9
3.7
1.2
2.2
1.6
1.3
2.0
1.8
1.3
0.8
1.5
0.7
0.5
1.0
0.7
0.1
49.0
51.0
FY16
23.9
21.9
18.8
14.7
9.3
4.1
4.0
3.9
3.2
3.0
2.7
2.1
1.9
1.6
1.6
1.6
1.4
1.0
0.7
0.7
0.6
0.6
0.5
0.1
51.5
48.5
th
Source: MOSL, Life Insurance Council, Company
September 2016
4

HDFC Life
12 Annual Global Investor Conference
Exhibit 9:
Implied valuation of HDFC Life at INR480b (~3.7x PEV FY18)
Implied valuation of HDFC
Life 2x+ of the last deal
value stake sale to Standard
Life Insurance
A
B
C
D=(A-B)
E=(D/C)
F
G=(E/F)
H=(G-E)
MCAP of MFS (As of 9th September)
Less: Cash
MFS Stake in MLI
Value of MLI for 69% stake
Entity valuation of MLI
Share of MLI in the Merged Entity (%)
Value of Combined Entity
Implied value of HDFC Life
151,857
1,500
69.0
150,357
217,909
31.1
700,713
482,804
Source: MOSL, Company
th
Exhibit 10:
Combined entity PEV at 3.5x FY18
Combined entity valued at
USD10b at the share swap
ratio
A
B
C=(A+B)
D= C*(1.18)^2
E
F
G=(D-E-F)
H
I=(H/G)
J=(H-G)
K
L=(K*20%)
M=(J/L)
MLI EV (FY16)
HDFC Life EV (FY16)
Combined EV (FY16)
FY18 EV (Pre Dividend)
Less: Dividend (FY17+FY18)
Less: Non compete fees
FY18E EV (Combined entity)
Value of combined entity
Combined entity PEV (x)
Structural Value
APE (15% CAGR)
NBAP margin (20%)
NBAP multiple (x)
56,170
102,050
158,220
220,306
14,000
8,500
197,806
700,713
3.54
502,908
72,023
14,405
34.9
Source: MOSL, Company
Exhibit 11:
HDFC Life SH pattern (%)
Standa
rd Life,
35.0
Exhibit 12:
Max Life SH pattern (%)
AXSB+I Promo
DFCB+ ters via
Others, MFS,
5.0
21.0
Exhibit 13:
Merged entity SH pattern,%
MFS
other
SH,
15.0
MSI,
8.0
MAX
Prom.,
6.6
Other
SH, 2.3
HDFC,
42.5
Others,
3.4
HDFC
and
associa
tes,
61.6
Source: MOSL, Company
MSI,
26.0
AXSB+I
DFCB,
1.5
Other
SH of
MFS,
48.0
Source: MOSL, Company
Std
life,
24.1
Source: MOSL, Company
September 2016
5

HDFC Life
12 Annual Global Investor Conference
Exhibit 14:
HDFC Life to issue 900m+ shares to shareholders of Max Life (31% of enhanced capital base)
th
Source: MOSL, Company
September 2016
6

HDFC Life
12 Annual Global Investor Conference
Exhibit 15:
Financials: Valuation metrics
66
Rating
CMP
Mcap
EPS (INR)
FY17
17.2
58.4
31.8
26.8
78.8
50.5
3.3
3.9
7.4
17.6
3.1
14.7
10.8
-10.8
14.1
25.4
22.4
16.7
24.8
2.9
FY18
19.9
70.2
37.4
34.0
99.2
63.8
4.0
4.7
8.6
21.2
3.7
24.3
12.8
21.6
20.0
34.8
39.1
24.2
31.4
8.2
P/E (x)
FY17
12.5
22.1
19.3
30.6
16.2
24.0
19.6
18.7
16.4
4.4
7.9
21.1
17.9
13.4
-11.5
12.2
12.3
6.7
7.8
9.2
21.2
16.2
19.6
28.7
14.4
11.7
38.2
28.0
9.8
22.4
4.1
5.2
4.7
17.9
25.4
33.3
13.1
16.0
14.3
14.1
17.8
FY18
9.9
18.4
16.4
24.1
12.9
19.0
15.9
15.7
14.1
3.7
6.6
17.7
10.9
11.3
5.7
8.6
8.9
3.8
5.4
7.3
7.6
10.5
15.0
22.9
11.6
9.5
29.8
21.4
7.8
18.8
3.5
4.9
4.2
14.5
19.5
26.1
10.9
14.8
11.6
12.1
14.1
BV (INR)
FY17
144
332
243
207
390
334
43
50
69
146
30
234
193
239
157
497
314
410
300
129
FY18
158
386
274
240
469
389
46
54
78
162
33
253
204
255
173
524
348
428
324
136
P/BV (x)
FY17
1.43
3.89
2.52
3.95
3.27
3.63
1.50
1.46
1.75
0.54
0.81
2.81
1.20
0.75
0.52
1.09
0.63
0.48
0.32
0.77
0.48
0.82
1.71
4.47
2.73
2.84
11.21
4.74
1.55
4.50
0.72
0.84
0.79
2.43
3.00
6.93
2.30
4.95
2.31
2.54
1.87
FY18
1.24
3.34
2.24
3.41
2.72
3.12
1.40
1.37
1.56
0.48
0.74
2.49
1.10
0.71
0.48
1.00
0.59
0.43
0.30
0.71
0.46
0.77
1.57
3.55
2.30
2.53
9.01
3.96
1.35
3.97
0.62
0.75
0.69
2.14
2.70
5.65
2.03
3.71
2.09
2.25
1.71
RoA (%)
FY17
1.13
1.90
1.32
1.61
1.80
1.92
1.19
0.67
0.98
0.99
0.61
0.47
0.31
-0.16
0.47
0.24
0.37
0.23
0.56
0.15
FY18
1.17
1.89
1.31
1.82
1.84
1.96
1.08
0.67
0.93
1.05
0.64
0.54
0.34
0.29
0.60
0.30
0.58
0.30
0.64
0.39
RoE (%)
FY17
10.6
18.9
13.8
14.2
22.0
16.2
7.9
8.0
11.3
12.7
10.7
7.9
5.7
-4.6
9.3
5.2
7.4
4.2
8.5
2.3
FY18
11.3
19.6
14.4
15.4
23.1
17.6
9.1
9.0
11.7
13.7
11.7
9.5
6.5
8.7
12.1
6.8
11.8
5.8
10.1
6.2
th
ICICIBC*
Buy
HDFCB
Buy
AXSB
Buy
KMB*
Buy
YES
Buy
IIB
Buy
IDFC Bk
Buy
FB
Buy
DCBB
Buy
JKBK
Neutral
SIB
Buy
Private Aggregate
SBIN (cons)* Buy
PNB
Neutral
BOI
Neutral
BOB
Buy
CBK
Neutral
UNBK
Buy
OBC
Neutral
INBK
Buy
ANDB
Buy
Public Aggregate
Banks Aggregate
HDFC*
Buy
LICHF
Buy
IHFL
Buy
GRHF
Buy
REPCO
Buy
DEWH
Buy
Housing Finance
RECL
Neutral
POWF
Neutral
Infra Finance
SHTF
Buy
MMFS
Buy
BAF
Buy
MUTH
Buy
SKSM
Buy
Asset Finance
NBFC Aggregate
Financials
(INR) (USD b)
274
24.2
1,291
49.4
613
22.1
819
22.8
1,277
8.1
1,214
10.9
64
3.3
73
1.9
121
0.5
78
0.6
24
0.5
144.4
264
31.1
145
4.3
123
1.7
172
6.0
311
2.6
149
1.6
130
0.7
229
1.7
62
1.9
51.5
195.9
1,411
33.8
583
4.5
795
5.1
318
1.8
851
0.8
300
1.3
47.2
242
3.6
125
5.0
8.6
1,223
4.2
353
3.0
1,152
1.9
365
2.2
779
1.5
12.8
68.6
264.5
34.6
40.4
68.2
8.3
30.4
30.5
59.2
24.0
68.4
13.9
34.6
28.0
48.8
37.9
50.1
84.0
10.7
39.7
38.2
68.6
25.5
84.6
18.1
44.2
33.6
52.5
194
214
280
28
180
194
336
149
503
118
166
159
157
217
254
315
35
215
222
389
167
570
131
204
180
210
1.85
1.52
3.74
2.33
2.15
1.25
2.63
2.37
1.96
1.92
3.48
3.66
6.30
1.83
1.56
3.78
2.34
2.20
1.34
2.55
2.12
2.01
2.19
3.38
3.57
4.48
19.5
20.5
25.6
32.4
18.3
16.7
18.9
16.8
14.4
12.3
22.8
18.7
36.7
19.0
21.4
28.2
33.5
20.1
18.4
18.9
16.2
15.6
14.5
23.9
19.9
28.6
*Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in subsidiaries
September 2016
7

HDFC Life
12 Annual Global Investor Conference
th
SECTOR GALLERY
September 2016
8

HDFC Life
12 Annual Global Investor Conference
th
NOTES
September 2016
9

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th
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12 Annual Global Investor Conference
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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:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Kadambari Balachandran
kadambari.balachandran@motilaloswal.com
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September 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
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