Life Insurance Steady Compounder

Insurance
Sector outlook
Adarsh Parasrampuria
Steady compounder
Maintain positive view on the sector; Max Financial is our top pick
adarsh.parasrampuria@clsa.com
+91 22 6650 5057 Private life insurers have recovered well from the pandemic with positive APE growth
since Sep 2020, and hence we increase our FY20-23F APE/VNB growth estimates by
Mohit Surana 7%-13%. We expect the sector to return to steady compounding from FY22CL (16%-
+91 22 6650 5037 19% APE and VNB Cagrs) as the pandemic provides a strong tailwind to the structural
protection opportunity, non-PAR savings remain an under-penetrated segment and
Ulip businesses could also be bottoming-out. Sector valuations have mean-reverted
and are now trading either close to pre-Covid-19 levels or in some cases higher than
pre-Covid-19 levels. This drives our downgrade of HDFC Life and IPRU Life from BUY
to Outperform. Max Financial has been the best performing life insurer, and remains
19 January 2021 our top pick. Our pecking order is now Max Financial, SBI Life then HDFC Life/IPRU
Life.
India
Insurance Recovering well post-pandemic—increase APE/VNB estimates by 7%/13%
q Individual APE growth for private insurers has recovered to positive growth since Sep 2020
Top pick: Max Financial following a 40% drop in 1QFY21 driven by strong trends in non-PAR savings.
Max Financial MAXF IB q Given the faster-than-expected recovery of APE, we increase our APE and VNB estimates
Rec BUY for our coverage universe (ex-IPRU) by 7%-13%.
Market cap US$3.3bn q APE/VNB have compounded at 9%-21%/24-41% Cagrs over FY16-20 and we expect
3M ADV US$15.7m APE/VNB growth of 16%-19% over FY21-23CL, leading to steady compounding.
Price Rs690.3
Target Rs780→Rs950 q Key drivers of APE growth include the structural opportunity in term life business, strong
Up/downside +37.6% demand for non-PAR savings business and the bottoming-out for ULIP sales. We would
highlight not so low ULIPs penetration in our July 2020 report (link).
SBI Life SBILIFE IN
Rec BUY
Market cap US$12.2bn Protection: some normalisation underway but structural opportunity remains
3M ADV US$20.0m q Covid-19 served as a strong tailwind for protection businesses and we estimate individual
Price Rs892.9
Target Rs1,000→Rs1,125 sum assured grew 30%-50% in 1HFY21.
Up/downside +26% q The past few months sum assured growth has contracted by 20% YoY. We read this as
normalisation from high growth in 1HFY21 as customer’s front-ended protection purchases
HDFC Life HDFCLIFE IN due to pandemic and expected price increases.
Rec BUY→O-PF
Market cap US$19.1bn q Structurally we see a strong growth potential for protection with <7m in inforce protection
3M ADV US$46.5m policies versus the potential for 20-30m today and growing. The recent slowdown is thus
Price Rs694.0 temporary due to the high 1HFY21 base, in our view.
Target Rs675→Rs765
Up/downside +10.2%
Valuations nearing pre-Covid-19 levels
ICICI Prudential Life IPRU IN q Life insurer valuations have mean reverted quickly as APE recovered post-1QFY21 and the
Rec BUY→O-PF
Market cap US$9.9bn pandemic provided tailwinds for high margin businesses like protection.
3M ADV US$14.4m q Currently valuations for the sector, except HDFC Life, are below pre-Covid-19 (Jan-Feb
Price Rs506.9 2020) levels. HDFC Life is trading at par with its Jan-Feb 2020 level and close to our fair
Target Rs535→Rs580 value. Hence we downgrade HDFC Life and IPRU from BUY to Outperform. We maintain
Up/downside +14.4%
our BUY recommendation on Max Financials (top pick) and SBI Life.
Key thesis: Max Financial is our top pick

q Max Financial (BUY): Max Financial has been able to deliver steady growth and share gains,
and has been able to diversify from its high PAR dependence. The completion of the deal
with Axis Bank will not only end distribution uncertainty but lead to better business
momentum as well. Our new Rs950 target price implies 37% upside.
q SBI Life (BUY): Its distribution remains best in class. SBI Life’s growth normalised slower
than peers post-pandemic but we do not see SBI Life lagging peers on growth over the
medium term. Its valuation is still c.19% below its pre-Covid-19 level.
q HDFC Life (down to Outperform): HDFC Life’s ability to drive innovation in margin-
accretive, new products will continue to drive best in class VNB margins and ROEV. Our
downgrade is primarily driven by its valuation (in-line with pre-Covid-19 highs).
q IPRU Life (down to Outperform): ULIP weakness had led to significant market share loss
for IPRU Life, but its VNB performance has held up due to strong protection performance.
We downgrade our recommendation as the stock is trading close to our fair value.
www.clsa.com
CLSA and CL Securities Taiwan Co., Ltd. (“CLST”) do and seek to do business with companies covered in its research reports. As such,
investors should be aware that there may be conflicts of interest which could affect the objectivity of the report. Investors should consider
this report as only a single factor in making their investment decisions. For important disclosures please refer to page 25.
Steady compounder Insurance
We would like to thank Evalueserve for its help in preparing our research reports. Ashit Jain (Consumer), Akshay Chandak (Strategy), Ayush Gandhi (Strategy),
Mohit Gupta (Auto), Mononita Mitra (Materials) and Zen Javeri (Power, Infra and Capital Goods) provide research support services to CLSA.
India life insurance—steady compounder
Sector to be back to 16%-19% APE/VNB Cagrs over FY21-23CL: Life insurance

sector has been a steady compounder with VNB growth of 25-40% CAGR over last
4 years. Private insurers have quickly recovered post pandemic with positive APE
growth in last 3mnts. We increase our APE/VNB estimates by 7-13% given the
faster than expected improvement. With strong trends in non PAR savings business,
structural growth opportunity in term life business and potential bottoming of
ULIPs business, we expect APE/VNB growth of our coverage universe to revert to
16-19% CAGR for FY21-23F making the sector a steady compounder.
Increase in PTs: We increase PT for our coverage universe by 8-22% driven by

better than expected APE/VNB trends and also a rollover in our discounted VNB
model to Mar-22 from Sep-21.
Valuations close to fair zone; Max financials our Top pick: With faster than
expected mean reversion, sector valuations have mean reverted to near fair levels.
While the sector will remain a strong compounder, we downgrade HDFC Life and
IPRU Life to Outperform from BUY and maintain BUY on SBI Life and Max
financials. Max Financials has been the best performing life insurer and completion
of its deal with Axis bank will drive another leg of re-rating.
Figure 1
Revised ratings and target prices for our life insurance coverage
Market Rating TP (Rs) Price Upside P/EV P/VNB
cap Old New Old New (Rs) (%) FY21CL FY22CL FY23CL FY21CL FY22CL FY23CL
(US$bn)
HDFC Life 19.1 BUY O-PF 675 765 694 10% 5.4 4.6 3.9 53.3 43.3 34.0
SBI Life 12.2 BUY BUY 1,000 1,125 893 26% 2.8 2.4 2.1 24.7 18.7 14.2
ICICI Pru Life 9.9 BUY O-PF 535 580 507 14% 2.6 2.2 1.9 27.1 20.4 15.7
Max Life 3.3 BUY BUY 780 950 693 37% 2.4 2.0 1.7 14.7 11.0 7.7
Source: Companies, Bloomberg, CLSA. Note: Priced as of 18 Jan. Max Life P/EV calculated using implied stock price. Market cap, TP and CMP mentioned pertain
to Max Financial.
Key company investment theses:
∑ Max financials (BUY) – top pick: Max Life insurance has been able to
diversify away from its high PAR dependence and has delivered steady
growth and market share gains over last 5-7 years. Completion of its Axis
bank deal, will lead to further re-rating as not only would distribution
uncertainty end but Axis bank will be able to drive higher value accretion
through stronger business momentum. Our revised target price of Rs950
implies 37% upside even after factoring in a 10% discount for regulatory
uncertainty
∑ HDFC Life (Downgrade to Outperform): HDFC Life continues to have a

balanced product mix and its ability to innovate on margin accretive
products will continue to drive its best in class VNB margins and ROEV.
Post the recent re-rating, valuations are 5-10% higher than 2019 and
average 2018-19 valuations and flat vs Jan/Feb 2020 valuations. We thus
downgrade to Outperform from BUY.
Find CLSA research on Bloomberg, Thomson Reuters, FactSet and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
19 January 2021 adarsh.parasrampuria@clsa.com 2

∑ SBI Life (BUY): SBI Life’s distribution strength has led to fastest margin
share gains. While SBI Life was slow to start off post pandemic, Dec 2020
data clearly points to improving new business momentum. Valuations are
still reasonable and 19% below Jan/Feb 2020 levels.
∑ ICICI prudential life (downgrade to Outperform): IPRU Life’s new business

APE trends have been weak due to its high dependence on ULIPs but VNB
trends have been strong driven by strong protection business. We expect
APE growth to mean revert to peer levels as ULIPs possibly would bottom
out in FY21F. Post recent strong performance, we downgrade stock to
Outperform from BUY.
Figure 2
HDFC Life’s current Current versus historical valuations

valuation is at premium to
its long-term average
Source: Bloomberg, companies, CLSA. Note: priced as of 18 January
Figure 3
Absolute and relative price performance: all Insurance stocks have outperformed indices the past month
Absolute price performance (%) Relative to Nifty (%) Relative to Bank Nifty (%)
Over Over Over Over From Over Over Over Over From Over Over Over Over From
1m 3m 6m 12m Covid 1m 3m 6m 12m Covid 1m 3m 6m 12m Covid
lows lows lows
HDFC Life 6% 22% 14% 16% 102% 2% 1% (15%) (1%) 15% 2% (9%) (25%) 14% 14%
SBI Life 4% 11% 4% (9%) 67% 0% (9%) (24%) (26%) (21%) 0% (19%) (35%) (11%) (21%)
ICICI Pru Life 5% 20% 15% 4% 111% 1% 0% (14%) (13%) 23% 2% (10%) (24%) 1% 23%
Max Life 7% 19% 22% 34% 140% 3% (1%) (6%) 17% 53% 3% (12%) (17%) 31% 52%
Nifty 4% 20% 28% 17% 88%
Bank Nifty 4% 31% 39% 2% 88%
Source: Bloomberg, CLSA. Note: priced as of 18 January

Figure 4
Valuation matrix: we roll forward to Mar 22CL & revise the target prices of our coverage universe
We maintain our BUY rating HDFC Life SBI Life ICICI Pru Life Max Life
on Max Life and SBI Life but Risk free rate 6.0% 6.0% 6.0% 6.0%
downgrade HDFC Life and Terminal growth 5.5% 5.0% 5.0% 5.0%
ICICI Pru Life from BUY to Required rate of return 11.3% 12.3% 12.5% 12.3%
O-PF Beta 1.05 1.25 1.30 1.25
Equity premium 5.00% 5.00% 5.00% 5.00%
Our growth assumptions
Growth Between FY16-20CL 19.6% 21.4% 9.3% 17.7%
FY21- Covid-19 impact 12.0% 3.9% (18.3%) 18.0%
Growth between FY21-25CL 17.0% 15.3% 16.3% 15.5%
Terminal growth 5.5% 5.0% 5.0% 5.0%
VNB margins
FY20 25.9% 20.7% 21.7% 21.6%
FY21CL 25.9% 21.0% 27.1% 23.6%
FY22CL 26.1% 21.8% 27.1% 23.6%
FY23CL 27.0% 22.2% 26.7% 24.0%
LT 30.0% 22.5% 27.0% 24.5%
Mar 22 EV Value 302 366 327 147

PV of future business 1,243 759 518 301
Dividend from FY20-21 3 3 2 1
Total Appraisal value 1,547 1,127 847 450
Multiple of EV 4.34 2.65 2.24 2.33
Multiple for future business 40.5 17.8 21.2 15.7
Shares 2,019 1,000 1,436 345
Target Price (rounded off/with 765 1,125 580 950
discount)
Ratings O-PF BUY O-PF BUY
Current price 694 896 509 695
Upside (%) 10% 26% 14% 37%
Source: companies, CLSA. Note: priced as of 18 January
APE momentum held up well during the pandemic. We expect 16%-19% APE/VNB
Cagrs over FY21-23CL:
∑ The Life insurance sector has normalised quickly post the pandemic with
APE growth of 2.6% for private insurers for last 3mnts leading to just 6%
contraction in APE now for 9MFY21. While ULIPs (market linked product)
did poorly, guaranteed return non PAR savings products and protection has
picked up pace leading to improvement in APE mix and hence VNB drop in
1HFY21 was just 12/15% vs 15-32% APE fall in 1HFY21.
∑ With APE and VNB growth holding up better, we increase by APE estimate
by 7-12%and VNB estimates by 6-13% for FY21-23CL with highest
increase of 12-13% in VNB for Max Financial as they have had the steadiest
improvement in APE/VNB post the pandemic. Overall we now expect APE
growth of 16-18% for our coverage universe leading to 17%-20% VNB
Cagr over FY21-23CL.

Figure 5 Figure 6
Individual APE growth for the sector recovered fairly quickly post- VNB growth held up better than APE in 1HFY21
pandemic
APE Growth VNB Growth
FY20 1HFY21 FY20 1HFY21
HDFC Life 18% -4% 25% -12%
SBI Life 11% -15% 16% -15%
ICICI Pru Life -5% -32% 21% -15%
Max Life 5% 4% 5% 20%
Source: Life Insurance Council, CLSA Note: Industry pertains to private Source: Companies, CLSA
players only
Figure 7
Revisions to our APE and VNB estimates; the highest increase was for Max Financial
Old estimates New Estimates Var%
FY21CL FY22CL FY23CL FY21CL FY22CL FY23CL FY21CL FY22CL FY23CL
Max Life
APE, Rsbn 44.4 51.1 58.8 49.0 56.8 65.9 10% 11% 12%
APE growth 7% 15% 15% 18% 16% 16%
VNB, Rsbn 10.2 12.0 14.1 11.6 13.4 15.8 13% 12% 12%
VNB Growth 14% 18% 17% 29% 16% 18%
VNB Margin 23.0% 23.5% 24.0% 23.6% 23.6% 24.0%
HDFC Life
APE, Rsbn 76.3 89.3 104.4 83.0 97.1 113.6 9% 9% 9%
APE growth 3% 17% 17% 12% 17% 17%
VNB, Rsbn 19.4 23.3 28.3 21.5 25.4 30.7 11% 9% 9%
VNB Growth 1% 20% 21% 12% 18% 21%
VNB Margin 25.5% 26.1% 27.1% 25.9% 26.1% 27.0%
SBI Life
APE, Rsbn 104.2 120.3 139.1 111.6 128.8 148.8 7% 7% 7%
APE growth (3%) 16% 16% 4% 15% 16%
VNB, Rsbn 21.7 26.4 30.8 23.4 28.1 33.0 8% 6% 7%
VNB Growth (2%) 22% 17% 5% 20% 17%
VNB Margin 20.8% 22.0% 22.2% 21.0% 21.8% 22.2%
ICICI Pru Life

APE, Rsbn 60.3 72.5 83.0 60.3 72.5 83.4 0% 0% 0%
APE growth (18%) 20% 14% (18%) 20% 15%
VNB, Rsbn 16.0 19.6 22.1 16.3 19.6 22.3 2% 0% 1%
VNB Growth 0% 22% 13% 2% 20% 14%
VNB Margin 26.5% 27.0% 26.7% 27.1% 27.1% 26.7%
Source: Companies, CLSA

Figure 8
Our estimates for APE, VNB margins and implied core ROEV for our coverage universe
FY16 FY17 FY18 FY19 FY20 FY21CL FY22CL FY23CL FY16-20 FY21-23 FY20-23
CAGR CAGR CAGR
APE, Rsbn
HDFC Life 36.2 41.9 55.3 62.6 74.1 83.0 97.1 113.6 19.6% 17.0% 15.3%
SBI Life 49.4 67.3 85.4 97.0 107.4 111.6 128.8 148.8 21.4% 15.5% 11.5%
IPRU Life 51.7 66.3 77.9 77.9 73.8 60.3 72.5 83.4 9.3% 17.6% 4.2%
Max Financials 21.6 26.5 32.5 39.5 41.5 49.0 56.8 65.9 17.7% 16.0% 16.7%
APE growth (%)

HDFC Life 13.5% 15.8% 32.1% 13.2% 18.3% 12.0% 17.0% 17.0%
SBI Life 39.1% 36.2% 26.9% 13.6% 10.7% 3.9% 15.4% 15.6%
IPRU Life 11.2% 28.1% 17.6% 0.0% (5.3%) (18.3%) 20.2% 15.0%
Max Financials 8.7% 22.5% 22.6% 21.6% 5.1% 18.0% 16.0% 16.0%
VNB, Rsbn
HDFC Life 7.1 9.2 12.8 15.4 19.2 21.5 25.4 30.7 28.3% 19.5% 16.9%
SBI Life 10.4 13.9 17.2 20.1 23.4 28.1 33.0 24.7% 18.8% 18.0%
IPRU Life 4.1 6.7 12.9 13.3 16.1 16.3 19.6 22.3 40.5% 16.8% 11.6%
Max Financials 3.9 5.0 6.6 8.2 9.0 11.6 13.4 15.8 23.5% 17.0% 20.8%
VNB margins
HDFC Life 19.8% 22.0% 23.2% 24.6% 25.9% 25.9% 26.1% 27.0%
SBI Life 15.4% 16.2% 17.7% 20.7% 21.0% 21.8% 22.2%
IPRU Life 8.0% 10.1% 16.5% 17.0% 21.7% 27.1% 27.1% 26.7%
Max Financials 17.8% 18.8% 20.2% 21.7% 21.6% 23.6% 23.6% 24.0%
RoEV (%)
HDFC Life 19.6% 21.7% 21.5% 20.1% 18.1% 19.1% 18.3% 18.4%
SBI Life 23.0% 17.9% 17.4% 20.5% 16.7% 16.8% 16.8%
IPRU Life 15.4% 16.5% 22.7% 20.2% 15.2% 15.6% 15.4% 15.1%
Max Financials 16.9% 19.9% 20.6% 21.9% 20.3% 20.1% 19.1% 18.9%
Figure 9
We expect the long-term We expect steady improvement in VNB margins for the sector
average VNB margin for
HDFC Life to be 30%, the
highest among all insurers

Figure 10
The share of Ulips has APE mix for the listed players has improved over the past 2-3 years
declined across all players

Protection: some normalisation in growth but a structural growth

opportunity
Covid-19 provided term insurance business a strong tailwind and in spite of

operational difficulty, term insurance sum assured growth was strong at 46%/30%
in 1QFY21/1HFY21. Since Sep 2020, individual protection sum assured growth has
slowed down and contracted by c.20% in Nov 2020/Dec 2020. Our understanding
is that protection sales is normalizing after very strong growth in 1HFY21 and not
a reflection of medium term stagnancy.
In our structural growth opportunity report (July 2020), we estimated there was
only 0.65mn inforce term insurance policies by private insurers (till FY20). Using
income tax assesse data and car population, we estimated medium term market
potential of 20-30mn life insurance policies vs inforce book of 6.5mn policies. We
thus continue to see a significant headway for growth for term life business.
The credit life business was impacted significantly in 1HFY21 with +60% drop in
new business. As retail disbursements have picked up especially in secured assets,
credit life sum assured is back to registering positive growth for the sector. We
expect the credit life business to grow marginally higher than retail disbursement
growth driven by gradual increase in attachment rates.
Figure 11 Figure 12
Term life sum assured growth: some normalisation over the past Credit life: pick-up in growth in line with retail disbursements
three months
Source: Companies, CLSA Note: Industry trend for private players Source: Companies, CLSA Note: Industry trend for private players

Figure 13
Max Life’s term protect Different strategy followed on protection pricing

prices are currently at
discounts to average prices
of the top 10 insurers
Source: Companies, CLSA Note: Average Term protect prices over last 3 months for 75 years coverage and sum
assured of Rs10m
Figure 14 Figure 15
We estimate a 3.5x increase in sum assured through term life Number of term life policies sold also increased by 3.5x-4.0x over
businesses during FY16-20 the past four years (FY16-20)
Source: ICICI Prudential Life, Max Life, HDFC Life, SBI Life, Insurance Source: ICICI Prudential Life, Max Life, HDFC Life, SBI Life, Insurance
Regulatory and Development Authority of India, CLSA Regulatory and Development Authority of India, CLSA
Figure 16
We estimate private insurers sold 1.8m term life policies in FY20; we estimate in-force term life
policies by private insurers at 6.5m
Term life APE, Rsbn FY20
ICICI Prudential 7.68
HDFC Life 4.70
SBI Life 5.10
Max Life 3.39
Top-four term life APE, Rsbn 20.87
Average ticket size, Rs 19000
FY20 new term life policies sold by Top-four, m 1.10
Sum assured market share of Top-four 60%
FY20 new term life policies total (private insurers), m 1.83
Our estimate of in-force term life policies (private insurers), m 6.59
Source: companies, CLSA

Figure 17 Figure 18
Addressable population for term life business is 10x its current size Based on immediate affordability we estimate term life business to
be 3x-5x its current size providing a big headway for growth
Source: India Income Tax Department, Ministry of Statistics and Programme Source: Society of Indian Automobile Manufacturers, Income Tax department
Implementation, CLSA Government of India, CLSA

Max Financial (BUY; target price Rs950; 37% upside)
Figure 19
We raise our Max Financial We maintain our BUY rating but raise our target price to Rs950 as we roll-forward to Mar 2022
target price by 18% Max Rsbn FY19 FY20 FY 20- FY 26- FY31- Terminal
Financial is our top pick in 25CL 30CL 40CL
the life insurance industry APE 40 42 335 594 2,312
Growth 21.6% 5.1% 16.0% 10.5% 8.5% 5.0%
NBP Margin post -over-run 21.7% 21.6% 24.0% 24.5% 24.5% 24.5%
NBV (post over-run) 9 9 81 146 567 1,098
Rsbn FY20 FY21CL FY22CL FY23CL Mar 22'

EV 99.7 124.7 147.4 174.0 147.4
Yearly NBV 9.0 11.6 13.4 15.8 13.4
Discounted value of NBV 260 280 301 322 301.0
Dividends (not in EV) 1.4 1.4 1.4 1.4 1.4
Appraisal value (Rsbn) 361 406 450 497 450
Max Financials stake in Max Life 81%
Value per share of Max Financials 1,050
EV multiple -Mar23 2.59
Discount for deal uncertainty 10%

Value of Max Life stake (after discount) 328
Our PT 950
EV multiple (x) - Mar23 2.33
Assumptions Outcome:
Risk free rate 6.0% Growth between FY20-25CL 16.0%
Beta 1.3 Growth between FY26-30CL 10.5%
Equity Return 12.3% Growth between FY31-40CL 8.5%
Terminal growth 5.00% Terminal growth 5.0%
Source: Company, CLSA
Figure 20
Max Financial reported a We expect Max Financials long-term VNB margin is 24.5%
24.2% VNB margin in
1HFY21

Figure 21
We expect Max Financial to report 19-20% ROEVs over FY21-23CL

FY 16 FY17 FY18 FY19 FY20 FY21CL FY22CL FY23CL
Opening EV (Rs bn) 52.3 56.1 65.9 75.1 89.3 99.7 124.7 147.4
Discount unwind 5.13 5.34 6.41 6.97 8.13 7.48 9.35 11.06
VNB post overruns 3.86 4.99 6.56 8.23 8.97 11.56 13.42 15.83
Operating assumption change (0.14) 0.86 0.62 1.26 1.03 1.00 1.00 1.00
Investment variance + Others (0.63) 1.71 (0.47) 3.84 (3.17) 4.86 0.40 0.40
Capital infusion/ Dividends (4.39) (3.18) (3.93) (6.01) (4.56) 0.00 (1.40) (1.74)
Closing EV (Rs bn) 56.1 65.9 75.1 89.3 99.7 124.7 147.4 174.0
EV Growth 8.1% 17.3% 14.0% 19.0% 11.6% 25.0% 18.3% 18.0%
Core ROEV 16.9% 19.9% 20.6% 21.9% 20.3% 20.1% 19.1% 18.9%
Source: Company CLSA
Figure 22 Figure 23
Max Financial’s 1-year forward valuation is trading above its long- Max Financial’s valuation is at a 16%/24% discount to ICICI
term average Pru/SBI Life’s long-term average valuations
Source: Company, BBG, CLSA Source: Companies, BBG, CLSA

Figure 24
Max Financial summary financials

Rsmn FY 16 FY17 FY18 FY19 FY20 FY21CL FY22CL FY23CL
New Business Weighted premium
ULIP APE 5,798 8,660 13,687 16,900 16,179 16,003 20,303 23,552
Non-par APE 3,089 3,722 4,598 6,555 12,564 24,004 20,303 23,552
Par APE 12,740 15,103 14,786 16,564 13,637 10,002 17,403 20,187
Total FY APE 21,627 27,485 33,072 40,019 42,380 50,008 58,009 67,291
FY APE growth rate 8.7% 27.1% 20.3% 21.0% 5.9% 18.0% 16.0% 16.0%
Premium mix (% of total)
ULIP 26.8% 31.5% 41.4% 42.2% 38.2% 32.0% 35.0% 35.0%
Non-par 14.3% 13.5% 13.9% 16.4% 29.6% 48.0% 35.0% 35.0%
Par 58.9% 54.9% 44.7% 41.4% 32.2% 20.0% 30.0% 30.0%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Protection APE 6.7% 7.7% 10.0% 13.0%

-Individual 3.5% 4.1% 6.0% 8.0%
-Group 3.2% 3.6% 4.0% 5.0%
-Credit Protect APE 3.2% 3.6% 4.0% 5.0%
-Corporate protection 0.0% 0.0% 0.0% 0.0%
Profit and loss
Underwriting profit 3,333 5,549 3,901 4,282 4,282 3,923 5,493 7,034
- Unit Linked 1,663 3,094 1,006 1,065 801 1,113 1,224 2,102
- PAR 688 905 985 1,185 1,389 1,702 1,883 2,047
- Non PAR 982 1,549 1,910 2,032 2,092 1,108 2,386 2,885
Shareholder's profit 1,777 2,134 2,252 1,945 1,698 1,998 2,276 2,597
Financial income 2,192 3,094 2,184 2,252 2,091 2,450 2,795 3,195
(-) Unallocable expenses 415 960 (68) 307 393 452 520 598
Profit before tax 5,110 7,683 6,152 6,228 5,979 5,921 7,769 9,631
(-) Tax 718 1,083 875 662 585 579 760 942
Profit after tax 4,391 6,600 5,277 5,565 5,395 5,342 7,009 8,689
Opex breakup
Opex 12,341 15,698 15,929 19,241 23,441 24,126 26,821 29,797
-Wages 5,954 8,023 7,543 8,435 12,327 12,456 13,751 15,159
-Other opex 6,387 7,675 8,386 10,806 11,114 11,670 13,070 14,639
Opex growth rate (0.6%) 27.2% 1.5% 20.8% 21.8% 2.9% 11.2% 11.1%
Opex to Total WRP 14.5% 15.9% 13.9% 14.3% 15.8% 14.0% 13.4% 12.8%
Balance sheet
Networth 20,239 25,093 26,989 27,609 25,739 31,080 36,688 43,639
Total AUM 358,240 443,695 522,365 627,979 684,707 850,894 960,177 1,094,079
ROE(%) 21.5% 29.1% 20.3% 20.4% 20.2% 18.8% 20.7% 21.6%
Solvency ratio 343% 309% 275% 242% 207% 209% 190% 180%
Dividend payout (INR) 3,646 2,700 2,859 3,972 4,560 - 1,402 1,738
Dividend payout ratio 83.0% 40.9% 54.2% 71.4% 84.5% 0.0% 20.0% 20.0%
Persistency
13th month 79.0% 80.0% 80.0% 83.0% 83.0%
25th month 67.0% 70.0% 72.0% 71.0% 71.0%
37th month 58.0% 60.0% 62.0% 64.0% 63.0%
49th month 56.0% 55.0% 57.0% 58.0% 59.0%
61st month 43.0% 53.0% 53.0% 53.0% 52.0%
Source: Company, CLSA Note: APE is calculated as sum of 10% of single premium and regular premium.

SBI Life (BUY; target price Rs1,125; 26% upside)
Figure 25
We maintain our BUY rating and raise our target price to Rs1125 as we roll forward to Mar 2022
We increase our SBI Life’s Rsbn FY19 FY20 FY 21- FY 26- FY31-40CL Terminal
target price by 13% 25CL 30CL
APE 97 107 757 1,361 5,044
Growth 13.6% 10.7% 12.9% 11.0% 7.5% 5.0%
NBV (post over-run) 17 22 169 313 1,160 2,169
FY20 FY21 FY22 FY23 Mar 22'
EV (Rsbn) 262.8 315.3 365.5 425.2 365.5
Yearly NBV 23.4 28.1 33.0 39.4 33.0
Appraisal value (Rsbn) 911 1,019 1,127 1,247 1,127
Our PT 1,125
EV multiple (x), Mar-23 2.65
New business multiple, Mar-23 17.8
Figure 26
SBI Life reported an 18.8% We expect SBI Life’s long term VNB margin to be 23%
VNB margin in 1HY21

Figure 27
We estimate SBI Life’s ROEV to be c.17% over FY21-23CL

EV + Margins FY17 FY18 FY19 FY20 FY21CL FY22CL FY23CL
Opening EV (Rs bn) 125.5 165.3 190.7 224.0 262.8 315.3 365.5
Discount unwind 10.9 14.1 16.2 19.0 19.1 22.9 26.5
VNB post overruns 10.4 13.9 17.2 20.1 23.4 28.1 33.0
Investment variance 12.8 -1.8 2.5 -7.1 8.5 - 1.5
Op. variances + Assump change 7.6 1.6 -0.2 6.8 1.5 2.0 2.0
Capital infusion/ Dividends -1.8 -2.4 -2.4 - - -2.7 -3.4
EV (Rs bn) 165.3 190.7 224.0 262.8 315.3 365.5 425.2
EV Growth 15.4% 17.5% 17.3% 20.0% 15.9% 16.3%
Core ROEV (%) 23.0% 17.9% 17.4% 20.5% 16.7% 16.8% 16.8%
Figure 28
Our target price implies a SBI Life’s 1-year forward valuations has reverted to its long-term average
2.65x Mar 23CL P/EV
Source: Company, BBG, CLSA

Figure 29
SBI Life summary financials

FY16 FY17 FY18 FY19 FY20 FY21CL FY22CL FY23CL
ULIP APE 26,585 47,186 56,398 67,945 74,043 63,285 71,801 81,529
Non-par APE 7,680 7,943 7,608 9,809 19,542 34,916 41,569 49,500
Par APE 14,512 10,879 20,214 17,553 11,467 10,911 12,597 14,559
Total FY APE 48,777 66,009 84,220 95,307 105,051 109,112 125,967 145,588

ULIP 54.5% 71.5% 67.0% 71.3% 70.5% 58.0% 57.0% 56.0%
Non-par 15.7% 12.0% 9.0% 10.3% 18.6% 32.0% 33.0% 34.0%
Par 29.8% 16.5% 24.0% 18.4% 10.9% 10.0% 10.0% 10.0%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Protection APE 10.7% 6.5% 5.7% 6.9% 9.1%

-Individual 2.3% 1.2% 0.7% 3.9% 4.9%
-Group 8.4% 5.2% 5.0% 3.0% 4.3%
-Credit Protect APE 3.1% 2.9% 2.8% 2.1% 2.3%
-Corporate protection 5.3% 2.4% 2.1% 0.9% 2.0%
Profit and loss
- Unit Linked 1,394 562 1,808 2,952 5,782 6,576 8,585 9,539
- PAR 700 850 1,097 1,344 1,524 1,924 2,183 2,382
- Non PAR 3,631 4,505 4,633 4,698 2,557 2,244 2,286 4,843
(-) Unallocable expenses 244 271 327 459 563 563 620 681
(-) Tax 127 199 341 461 (86) 552 666 797
Profit after tax 8,610 9,544 11,504 13,267 14,221 14,902 18,046 22,717
Opex breakup
Opex 14,581 16,465 17,188 21,035 24,130 25,117 28,036 31,626
-Wages 6,963 8,227 9,582 12,372 13,614 14,285 15,904 18,038
-Other opex 7,618 8,238 7,606 8,663 10,517 10,832 12,132 13,588
Opex growth rate 23.8% 12.9% 4.4% 22.4% 14.7% 4.1% 11.6% 12.8%
Opex to Total WRP 10.7% 9.4% 7.5% 7.3% 7.0% 6.5% 6.4% 6.4%
Balance sheet
Networth 47,331 55,521 65,278 75,764 87,431 102,333 117,673 136,982
Total AUM 778,427 958,303 1,144,359 1,393,247 1,588,132 2,144,917 2,518,274 2,948,711
ROE(%) 19.6% 18.6% 19.0% 18.8% 17.4% 15.7% 16.4% 17.8%
Solvency ratio 212% 204% 206% 213% 195% 181% 174% 172%
Persistency
13th month 80.0% 81.1% 83.0% 85.1% 86.1%
25th month 72.1% 73.9% 75.2% 76.7% 78.5%
37th month 68.4% 67.4% 70.0% 71.4% 71.6%
49th month 77.2% 62.5% 63.9% 66.4% 67.3%
61st month 50.6% 67.2% 58.4% 57.2% 59.9%

HDFC Life (O-PF; target price Rs765; 10% upside)
Figure 30
We downgrade HDFC Life to O-PF but lift our target price to Rs765 as we roll-forward our
We raise our HDFC Life valuation to Mar 2022
target price by 13% Rsbn FY19 FY20 FY 20- FY 26- FY31-40CL Terminal
25CL 30CL
APE 63 74 582 1,155 5,282
Growth 13.2% 18.3% 16.0% 13.5% 10.5% 5.5%
NBV (post over-run) 15 19 164 346 1,585 4,146
EV (Rsbn) 206.2 257.3 301.8 356.3 301.8
Yearly NBV 21.2 25.4 30.7 39.9 30.7
Discounted value of NBV 1,044 1,140 1,243 1,352 1242.8
Appraisal value (Rsbn) 1,252 1,400 1,547 1,711 1,547
Our PT 765
EV multiple (x)- Mar-23 4.34
New business multiple- Mar-23 29.9
Figure 31
We estimate HDFC Life’s long term VNB margin at 30%
Source: Company, CLSA .

Figure 32
We estimate HDFC Life to report an ROEV of 18%-19% over FY21-23CL

Rsbn FY 16 FY17 FY18 FY19 FY20 FY21CL FY22CL FY23CL
Opening EV 88.0 102.3 124.7 152.2 183.0 206.2 257.5 302.0
Discount unwind 6.16 9.59 10.40 13.00 13.70 14.95 18.67 21.90
Investment variance (2.00) 2.54 2.60 3.60 (10.00) 11.90 0.00 1.96
Op. variances + Assump change 4.00 3.38 3.60 2.20 0.30 3.00 3.00 3.00
Capital infusion/ Dividends (2.09) (2.26) (1.92) (3.31) 0.07 0.00 (2.53) (2.99)
Closing EV 101.2 124.8 152.2 183.1 206.3 257.5 302.0 356.5
EV Growth 14.8% 23.3% 22.0% 20.3% 12.7% 24.8% 17.3% 18.1%
Core RoEV 19.6% 21.7% 21.5% 20.1% 18.1% 19.1% 18.3% 18.4%
Figure 33
Our target price implies a HDFC Life’s 1-year forward valuation is trading at 1 std. deviation above its long-term average
4.34x Mar 2023 P/EV
Source: Company, BBG, CLSA

Figure 34
HDFC Life summary financials

FY 16 FY17 FY18 FY19 FY20 FY21CL FY22CL FY23CL
ULIP APE 19,776 20,162 28,373 28,498 17,583 16,047 22,530 26,360
Non-par APE 6,598 8,229 12,239 23,315 42,637 43,326 48,814 57,112
Par APE 9,782 12,461 13,385 8,681 11,416 20,861 22,530 26,360
Total FY APE 36,156 40,852 53,996 60,494 71,637 80,233 93,873 109,831
ULIP 54.7% 49.4% 52.5% 47.1% 24.5% 20.0% 24.0% 24.0%
Non-par 18.2% 20.1% 22.7% 38.5% 59.5% 54.0% 52.0% 52.0%
Par 27.1% 30.5% 24.8% 14.4% 15.9% 26.0% 24.0% 24.0%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Protection APE 8.0% 11.6% 17.3% 17.7%

-Individual 3.7% 4.5% 5.8% 6.6%
-Group 4.3% 7.0% 11.5% 11.2%
P&L
- Unit Linked 2,477 3,113 2,049 1,201 6,240 7,360 6,808 6,611
- PAR 691 764 993 1,447 1,835 1,595 1,770 1,959
- Non PAR 3,635 3,633 5,415 6,337 2,792 3,168 4,734 7,096
(-) Unallocable expenses 247 637 121 376 2,313 313 328 312
(-) Tax 166 220 177 131 165 1,239 1,521 1,831
Profit after tax 8,183 8,922 11,090 12,773 12,953 15,013 16,861 19,938
Opex breakup
Opex 18,718 23,916 31,592 38,128 42,669 42,327 46,398 51,377
-Wages 8,464 11,042 12,918 14,082 16,770 17,205 18,763 20,978
-Other opex 10,254 12,874 18,675 24,046 25,899 25,122 27,635 30,398
Opex growth rate 25.7% 27.8% 32.1% 20.7% 11.9% (0.8%) 9.6% 10.7%
Opex to Total WRP 13.9% 16.1% 17.9% 18.8% 18.9% 16.7% 16.0% 15.4%
Balance sheet
Networth 31,086 38,387 47,492 56,556 67,999 83,012 97,345 114,292
Total AUM 742,300 917,376 1,066,029 1,255,517 1,272,262 1,644,951 1,838,616 2,091,870
Underwriting profits ( % of AUMs) 1.00% 0.94% 0.89% 0.81% 0.90% 0.87% 0.80% 0.84%
ROE(%) 29.0% 25.7% 25.8% 24.6% 20.8% 19.9% 18.7% 18.8%
Solvency ratio 198% 192% 192% 188% 184% 192% 182% 177%
Persistency
13th month 78.9% 83.8% 87.1% 87.2% 90.1%
25th month 67.4% 75.3% 77.4% 80.5% 80.2%
37th month 60.1% 64.7% 70.9% 72.0% 73.8%
49th month 63.4% 59.5% 62.2% 67.7% 67.2%
61st month 50.1% 58.8% 51.0% 52.3% 55.0%
Source: : Company, CLSA Note: APE is calculated as sum of 10% of single premium and regular premium.

ICICI Pru Life (O-PF; target price Rs580; 14% upside)

Figure 35
We downgrade ICICI Pru Life to O-PF but lift our target price to Rs580 as we roll forward to Mar
2022
We increase our ICICI Pru
target price by 8% Rsbn FY19 FY20 FY 20- FY 25- FY30-40CL Terminal
25CL 30CL
APE 78 74 422 785 3,128
Growth 0.0% (5.3%) 8.4% 12.0% 8.5% 5.0%
NBV (post over-run) 13 16 114 212 845 1,582
EV (Rsbn) 230.4 285.3 327.3 378.3 327.3
Yearly NBV 16.1 16.3 19.6 22.3 19.6
Appraisal value (Rsbn) 676 770 852 946 852
Our PT 580
EV multiple (x) , Mar-23 2.25
New business multiple , Mar -23 21.2
Figure 36
ICICI Pru Life reported a We estimate the long-term average VNB margin for ICICI Pru Life at 27%
margin of 26.3% in 1HFY21

Figure 37
We estimate ICICI Pru Life to report an ROEV of c.15% over FY21-23CL

EV + Margins FY16 FY17 FY18 FY19 FY20 FY21CL FY22CL FY23CL
Opening EV (Rs bn) 138.2 139.4 161.8 188.0 216.3 230.4 285.3 327.3
Discount unwind 12.59 12.21 13.72 15.84 17.25 16.70 20.68 23.73
Investment variance (5.64) 5.82 0.00 (1.22) (14.76) 18.82 0.33 3.56
Op. variances + Assump change 4.51 4.08 11.35 8.89 (0.41) 3.00 3.50 3.50
Capital infusion/ Dividends (14.41) (6.32) (11.80) (8.43) (4.05) 0.00 (2.11) (2.11)
EV (Rs bn) 139.4 161.8 188.0 216.3 230.4 285.3 327.3 378.3
EV Growth 1.6% 16.1% 16.1% 15.1% 6.5% 23.8% 14.7% 15.6%
Core ROEV (%) 15.4% 16.5% 22.7% 20.2% 15.2% 15.6% 15.4% 15.1%
Figure 38
Our target price implies a ICICI Pru Life’s 1-year forward valuation has reverted to its long-term average
2.25x Mar 2023 P/EV
Source: BBG, Company, CLSA

Figure 39
ICICI Pru Life summary financials

FY16 FY17 FY18 FY19 FY20 FY21CL FY22CL FY23CL
New Business Weighted
premium
ULIP APE 42,616 55,567 63,618 59,980 48,999 26,716 32,120 36,930
Non-par APE 1,547 3,212 3,826 6,637 13,198 21,489 25,836 29,704
Par APE 6,922 6,186 7,973 6,554 8,861 9,873 11,870 13,648
Total FY APE 51,085 64,965 75,417 73,171 71,058 58,079 69,826 80,282
FY APE growth rate 9.9% 27.2% 16.1% (3.0%) (2.9%) (18.3%) 20.2% 15.0%
Premium mix (% of total) FY16 FY17 FY18 FY19 FY20 FY21CL FY22CL FY23CL
ULIP 83% 86% 84% 82% 69% 46% 46% 46%
Non-par 3% 5% 5% 9% 19% 37% 37% 37%
Par 14% 10% 11% 9% 12% 17% 17% 17%
Total 100% 100% 100% 100% 100% 100% 100% 100%
Protection APE 4.0% 5.9% 9.9% 15.7% 0.0% 0.0% 0.0%

-Individual 3.2% 3.7% 6.0% 10.8%
-Group 0.8% 2.3% 3.9% 4.9% 0.0% 0.0% 0.0%
Profit and loss
- Unit Linked 5,442 5,745 8,131 7,856 14,081 14,371 13,059 11,238
- PAR 379 428 519 597 653 797 965 1,111
- Non PAR 6,255 5,304 1,518 (2,954) (9,818) (6,803) (4,572) (820)
(-) Unallocable expenses 382 409 420 422 885 1,018 1,170 1,346
(-) Tax 1,212 1,028 997 223 0 550 627 709
Profit after tax 16,501 16,997 16,220 11,390 10,668 12,395 14,049 16,726
Opex breakup
Opex 18,867 23,572 20,299 26,053 28,469 25,217 28,139 31,496
-Wages 7,350 8,080 9,653 9,731 10,307 9,780 10,849 12,305
-Other opex 11,517 15,492 10,646 16,322 18,161 15,437 17,290 19,191
Opex growth rate 14.1% 24.9% (13.9%) 28.3% 9.3% (11.4%) 11.6% 11.9%
Opex to Total WRP 10.8% 11.2% 8.0% 9.3% 10.1% 9.1% 9.6% 10.0%
Balance sheet
Networth 53,238 63,963 68,810 70,416 72,125 84,520 96,461 110,678
Total AUM 1,030,271 1,215,852 1,385,374 1,590,031 1,512,505 1,974,311 2,078,045 2,223,250
ROE(%) 31.2% 29.0% 24.4% 16.4% 15.0% 15.8% 15.5% 16.1%
Solvency ratio 320% 281% 252% 215% 194% 206% 204% 203%
Persistency
13th month 81.8% 84.7% 85.8% 84.6% 83.2%
25th month 70.1% 73.0% 77.0% 75.6% 75.1%
37th month 60.7% 65.5% 67.6% 69.3% 66.7%
49th month 59.3% 58.3% 62.8% 63.8% 64.6%
61st month 24.1% 53.8% 53.7% 56.8% 56.0%

Valuation details - HDFC Standard Life Insurance Co. Ltd HDFCLIFE

IN
Our Price Target of Rs765/share implies a 4.3x Mar-22P/EV multiple. We use the
appraisal value method where we discount future VNB and add the enterprise value
to arrive at our fair valuation and our target price.
Investment risks - HDFC Standard Life Insurance Co. Ltd HDFCLIFE

IN
The key risks to our view include unexpected regulatory tightening and a fall in
appetite for investment in capital markets. Weak demand for capital-market
investments can affect demand for unit-linked insurance products, which serve as
a savings vehicle for customers and drive the bulk of HDFC Life's new premiums. A
less likely risk is a change in the bancassurance relationship with parent HDFC Bank,
which is its key distribution channel. Prolonged lockdown or other restrictions due
to Covid-19 could impact insurance premiums; further, Covid-19 could also inflate
claims paid out. Both of these factors could be a downside risk to our margin
assumptions.
Valuation details - ICICI Prudential Life Insurance Co Ltd IPRU IN

Our price target of Rs580/share implies a 2.25x Mar-22 P/EV multiple. We use the
appraisal value method in which we discount future VNB and add the enterprise
value to arrive at our fair valuation and our target price.
Investment risks - ICICI Prudential Life Insurance Co Ltd IPRU IN

The key risks for ICICI Prudential Life Insurance include an unexpected tightening
of regulations and a fall in appetite for investment in capital markets. Weak demand
for capital market investments can affect demand for unit-linked insurance
products, which serve as a savings vehicle for customers and drive the bulk of ICICI-
Pru Life's new premiums. A less likely risk is a change in the bancassurance
relationship with parent ICICI Bank, which is its key distribution channel. A
prolonged lockdown or other restrictions due to Covid-19 could impact insurance
premiums; further, Covid-19 could also inflate claims paid out. Both of these factors
could be downside risks to our margin assumptions.
Valuation details - Max Financial Services Ltd MAXF IB

Our target price is based on a 2.33x Mar-22 P/EV multiple including a discount for
regulatory risk. We use an appraisal value method, in which we discount future VNB
and add enterprise value to arrive at our fair valuation and our target price.
Investment risks - Max Financial Services Ltd MAXF IB

Key risks include unexpected regulatory tightening or a changed in Axis Bank
bancassurance relationship, the company's key distribution channel. Prolonged
lockdown or other Covid-19 restrictions could hinder insurance premiums or inflate
claims paid out, which could tighten margins.
Valuation details - Sbi Life Insurance Company Limited SBILIFE IN

Our target price of Rs1125 is based on a 2.65x Mar-22 P/EV multiple. We use the
appraisal value method where we discount future VNB and add the enterprise value
to arrive at our fair valuation and our target price.

Investment risks - Sbi Life Insurance Company Limited SBILIFE IN

The key risks for SBI Life Insurance include an unexpected tightening of regulations
and fall in appetite for investment in capital markets. Weak demand for capital
market investments can affect demand for unit-linked insurance products, which
serve as a savings vehicle for customers and drive the bulk of SBI Life's new
premiums. A prolonged lockdown or other restrictions due to Covid-19 could hinder
insurance premiums; furthermore, Covid-19 could inflate claims paid out. Both of
these factors could cause downside risk to our margin assumptions.

Important disclosures Insurance
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Companies mentioned
Aegon (N-R)
Axis Bank (AXSB IB - RS656.1 - BUY)
Bajaj Finance (N-R)
Birla (N-R)
HDFC Bank (HDFCB IB - RS1,483.2 - BUY)
HDFC Life (HDFCLIFE IN - RS694.0 - O-PF)
ICICI Prudential Life (IPRU IN - RS506.9 - O-PF)
Kotak Bank (KMB IB - RS1,849.0 - U-PF)
Max Financial (MAXF IB - RS690.3 - BUY)
Max Life (N-R)
SBI Life (SBILIFE IN - RS892.9 - BUY)
Tata Investment (N-R)
Analyst certification
The analyst(s) of this report hereby certify that the views expressed in this research report accurately reflect my/our
own personal views about the securities and/or the issuers and that no part of my/our compensation was, is, or will
be directly or indirectly related to the specific recommendation or views contained in this research report.
Important disclosures
Recommendation history of Sbi Life Insurance Company Limited SBILIFE IN
Date Rec Target Date Rec Target

LATEST BUY 1,125.00 29 Jul 2020 O-PF 1,000.00
27 Oct 2020 BUY 1,000.00
Source: CLSA

Recommendation history of HDFC Standard Life Insurance Co. Ltd HDFCLIFE IN

LATEST O-PF 765.00 29 Apr 2019 BUY 490.00
26 Oct 2020 BUY 675.00 23 Jan 2019 BUY 475.00
22 Jul 2020 O-PF 675.00 24 Oct 2018 BUY 510.00
28 Apr 2020 BUY 640.00 22 Jul 2018 BUY 600.00
24 Oct 2019 BUY 730.00 21 Jan 2018 BUY 580.00
24 Jul 2019 BUY 610.00
Source: CLSA
Recommendation history of ICICI Prudential Life Insurance Co Ltd IPRU IN

LATEST O-PF 580.00 21 Mar 2019 BUY 450.00
28 Oct 2020 BUY 535.00 23 Jan 2019 BUY 430.00
22 Jul 2020 O-PF 500.00 19 Dec 2018 BUY 450.00
27 Apr 2020 BUY 420.00 24 Oct 2018 BUY 490.00
24 Oct 2019 BUY 600.00 25 Jul 2018 BUY 560.00
25 Jul 2019 BUY 500.00 21 Jan 2018 BUY 558.46*
25 Apr 2019 BUY 475.00
Source: CLSA; * Adjusted for corporate action

Recommendation history of Max Financial Services Ltd MAXF IB

LATEST BUY 950.00 07 Nov 2019 BUY 560.00
02 Nov 2020 BUY 780.00 31 May 2019 BUY 550.00
25 Aug 2020 BUY 720.00 12 Feb 2019 BUY 510.00
29 Jul 2020 O-PF 640.00 15 Nov 2018 BUY 550.00
28 May 2020 BUY 600.00
Source: CLSA
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Insurance

Key thesis: Max Financial is our top pick

India life insurance—steady compounder

Sector to be back to 16%-19% APE/VNB Cagrs over FY21-23CL: Life insurance

Increase in PTs: We increase PT for our coverage universe by 8-22% driven by

Key company investment theses:

∑ HDFC Life (Downgrade to Outperform): HDFC Life continues to have a

19 January 2021 adarsh.parasrampuria@clsa.com 2

∑ ICICI prudential life (downgrade to Outperform): IPRU Life’s new business

HDFC Life’s current Current versus historical valuations

Source: Bloomberg, companies, CLSA. Note: priced as of 18 January

19 January 2021 adarsh.parasrampuria@clsa.com 3

Mar 22 EV Value 302 366 327 147

19 January 2021 adarsh.parasrampuria@clsa.com 4

APE Growth VNB Growth

FY20 1HFY21 FY20 1HFY21

HDFC Life 18% -4% 25% -12%

SBI Life 11% -15% 16% -15%

ICICI Pru Life -5% -32% 21% -15%

Max Life 5% 4% 5% 20%

ICICI Pru Life

19 January 2021 adarsh.parasrampuria@clsa.com 5

APE growth (%)

Source: Companies, CLSA

19 January 2021 adarsh.parasrampuria@clsa.com 6

Source: Companies, CLSA

19 January 2021 adarsh.parasrampuria@clsa.com 7

Protection: some normalisation in growth but a structural growth

Covid-19 provided term insurance business a strong tailwind and in spite of

19 January 2021 adarsh.parasrampuria@clsa.com 8

Max Life’s term protect Different strategy followed on protection pricing

19 January 2021 adarsh.parasrampuria@clsa.com 9

19 January 2021 adarsh.parasrampuria@clsa.com 10

Max Financial (BUY; target price Rs950; 37% upside)

Rsbn FY20 FY21CL FY22CL FY23CL Mar 22'

Discount for deal uncertainty 10%

Source: Company, CLSA

19 January 2021 adarsh.parasrampuria@clsa.com 11

We expect Max Financial to report 19-20% ROEVs over FY21-23CL

Source: Company, BBG, CLSA Source: Companies, BBG, CLSA

19 January 2021 adarsh.parasrampuria@clsa.com 12

Max Financial summary financials

Protection APE 6.7% 7.7% 10.0% 13.0%

19 January 2021 adarsh.parasrampuria@clsa.com 13

SBI Life (BUY; target price Rs1,125; 26% upside)

Source: Company, CLSA

19 January 2021 adarsh.parasrampuria@clsa.com 14

We estimate SBI Life’s ROEV to be c.17% over FY21-23CL

Source: Company, BBG, CLSA

19 January 2021 adarsh.parasrampuria@clsa.com 15

SBI Life summary financials

Premium mix (% of total)

Protection APE 10.7% 6.5% 5.7% 6.9% 9.1%

19 January 2021 adarsh.parasrampuria@clsa.com 16

HDFC Life (O-PF; target price Rs765; 10% upside)

We estimate HDFC Life’s long term VNB margin at 30%

Source: Company, CLSA .

19 January 2021 adarsh.parasrampuria@clsa.com 17

We estimate HDFC Life to report an ROEV of 18%-19% over FY21-23CL

Source: Company, BBG, CLSA

19 January 2021 adarsh.parasrampuria@clsa.com 18

HDFC Life summary financials

Protection APE 8.0% 11.6% 17.3% 17.7%