Research report on HDFC Life Insurance & IndusInd
Bank from Ventura
1. HDFC
Life Insurance Co Ltd
Post
Covid-19, the Indian insurance sector has shown a remarkable growth, with gross
premium growing at a CAGR of 9.7% from INR 5.7 trillion in FY20 to INR 8.3
trillion in FY24. We expect this growth to continue, with the sector poised to
expand at a CAGR of 11.4% to INR 11.5 trillion by FY28. The key growth drivers
include:
• Rising
awareness regarding the need for financial protection among the masses,
especially after the pandemic.
• A
growing working-age population, currently standing at +900 mn individuals
between the ages of 18-60 years.
• A
market that is still relatively underpenetrated ($70 premium per capita),
compared to $274 in China, $2,245 in Japan, $8,200 in the US and $900 of the
global average, indicating substantial potential for growth.
2.
IndusInd Bank Ltd
IndusInd
Bank, which saw strong growth following its 2020 recapitalization, is now
facing multiple headwinds that cloud its near-term outlook. The most material
concern is a 2.35% overstatement in its derivatives portfolio, stemming from
long standing internal trade accounting discrepancies.
This has raised red flags around internal controls and could possibly trigger
additional provisioning, restatements, and regulatory scrutiny, given the newly
appointed external agency discovers additional discrepancies.
The
bank’s microfinance portfolio also remains under pressure, with slippages
driving the 30–90 DPD bucket to 4%, resulting in elevated credit costs. In
Karnataka, collection efficiency has weakened due to regulatory overhang, but
the impact remains contained, with just 1% of the total book in affected
districts and the state accounting for 13% of the microfinance portfolio. The
Karnataka ordinance, which came into effect in Feb’25, could result in weak
collections and possibly higher slippages.
With the
RBI granting only a one-year extension to CEO Sumant Kathpalia, while it will
be business as usual at the bank, the street will be focusing on strategies
that the new CEO will undertake for the bank to hike its growth trajectory.
Over
FY24–27, IndusInd Bank’s advances are expected to grow from INR 343,298 cr to
INR 484,327 cr (CAGR 12.2%), while deposits rise from INR 384,793 cr to INR
569,796 cr (CAGR 14.0%), with CASA moderating to 35% due to higher reliance on
term deposits.
NII is
projected to grow from INR 20,616 cr to INR 29,299 cr (CAGR 12.4%), with
calculated NIM stabilizing at ~4.5%(reported NIM is usually lower than
calculated NIM). PPOP is expected to rise from INR 15,864 cr to INR 20,114 cr
(CAGR 8.2%), though margins will compress to 25% as cost-to-income peaks at 58%
in FY25 (due to one-time derivative provisioning), before easing to 52%.
GNPA is
likely to increase to 2.4% by FY27 due to MFI stress, while NNPA remains stable
at 0.7%. PCR is expected to settle at 70%, supporting asset quality.
Profitability to moderate, with RoAA easing from 1.8% to 1.3% and RoAE from
15.3% to 11.6%. CAR is projected to decline from 17.2% to 15.4%, staying well
above regulatory.
