In its latest report dated April 17, 2025, Motilal Oswal has reaffirmed a BUY rating on HDFC Life Insurance with a target price of Rs 850, indicating an upside potential of 18% from the current market price of Rs 720. Despite moderating growth expectations for FY26, the insurer has delivered a robust financial performance in FY25 with 13% YoY growth in gross premium, 15% rise in PAT, and resilient Value of New Business (VNB) margins. With improving persistency, digital transformation, and a strong solvency ratio of 194%, HDFC Life remains strategically positioned in India’s expanding insurance landscape.

Solid Fundamentals Underpin a Bullish Stance

Motilal Oswal’s analysis underscores HDFC Life’s structural strengths, including VNB margin stability at 25.6% in FY25, and a healthy 17% rise in embedded value (EV) to Rs 554.2 billion. The research house believes the company can deliver a 19% VNB CAGR between FY25 and FY27, bolstered by improving product margins, persistency trends, and process automation.

Despite slightly trimming margin assumptions by 20–30 basis points for FY26–FY27 due to investments in agent productivity and digital infrastructure, the brokerage maintains its conviction in the long-term story.

Financial Metrics Validate Long-Term Strength

Gross premium income rose by 13% YoY in FY25 to Rs 710 billion, powered by strong renewal and single premium growth. Annualized Premium Equivalent (APE) expanded 16% YoY to Rs 154.8 billion. Meanwhile, Value of New Business grew 13% YoY to Rs 39.6 billion.

Balanced Product Mix with Improving Persistency

HDFC Life’s product mix remains diversified. The Unit-Linked Insurance Plans (ULIPs) now account for 45% of individual APE, up from 36% a year ago. This shift contributed to a 40 bps YoY improvement in VNB margins for Q4FY25. The insurer also witnessed significant growth in the participating (Par) segment—up 41% YoY in Q4.

Persistency metrics also showed notable gains. The 61st-month persistency ratio improved by a remarkable 1,000 basis points to 63.5%, a testament to sustained policyholder engagement and better onboarding protocols.

Operational and Technological Efficiency

To support long-term profitability and customer experience, HDFC Life is executing a technology transformation strategy aimed at real-time servicing. Though this will temporarily elevate operational costs, management anticipates enhanced process efficiency and digital leadership.

The firm’s cost-efficiency drive includes improved agent productivity and automated workflows. HDFC Life added 30,000 agents and 117 new branches during FY25, strengthening its retail distribution.

Channel Dynamics and Sales Distribution

The contribution of the HDFC Bank channel remains steady at 65%. Term business through the agency channel grew over 50% YoY. The insurer is also focusing on increasing sum assured and rider attachment in ULIPs, particularly through bancassurance, to improve profitability.

HDFC Life onboarded 40 new banca partners in FY25 and aims to deepen penetration across both urban and semi-urban markets.

Moderation Ahead but Strong Base Set for FY26

While FY25 saw robust growth—especially in the first half—Motilal Oswal expects a moderation in APE growth to mid-teens in FY26 due to the base effect and market volatility. The ULIP segment, in particular, could face temporary headwinds from volatile equity conditions.

Nonetheless, HDFC Life is exploring multiple levers to protect margins, including better pricing discipline, cost controls, and a focus on longer-tenure products.

Valuation Outlook and Target

Motilal Oswal values the stock at 2.4x FY27E Embedded Value (EV), arriving at a target price of Rs 850. This represents an 18% upside from the current level.

Investor Takeaway: Resilient Core, Digital Ambition, Strategic Growth

HDFC Life Insurance stands out as a structurally strong insurer navigating a fast-evolving macro and policy environment. Its VNB resilience, prudent capital management, and evolving digital architecture make it a compelling play on India’s long-term insurance penetration story. Despite anticipated moderation in growth during FY26, the company's broad-based distribution, persistent product innovation, and balanced premium mix affirm Motilal Oswal’s conviction in maintaining a BUY rating with a Rs 850 target.

Investors looking for a stable financial services play with improving return metrics and growth visibility in the insurance sector may consider accumulating HDFC Life at current levels.