हिंदी – HDFC Life Insurance stock review


Hello investors , my name is Sagar and in this video we’ll talk about HDFC Life Insurance we will talk about their business model , financials and valuations Let’s start with their history, Until 90’s , there was a monopoly in the life insurance sector. It was dominated by Life Insurance Corporation of India They didn’t need to innovate and bring new products in the market because they knew they were the only players but the Government allowed private players to enter this sector in 2000 and this is when this company started It started as a partnership between HDFC and Standard Life Aberdeen (well known provider of financial savings & investments services in the United Kingdom) Let’s talk about their management. The CEO is Vibha Padalkar. She has been in this company for more than 10 years Prior to her appointment at HDFC Life, she has worked in varied sectors such as global FMCG and in an international audit firm. she has done a great job in HDFC Life Insurance because this company is number one in market share among the private players Let’s talk about their business model. Let’s understand what these life insurance companies do first. Basically it’s a contract between a policyholder (customer ), who will keep paying his premiums consistently and an insurance company , which will pay him if anything goes wrong but the products have changed a lot so we will talk about them. They do have many variations but at the end , they are divided into two products. We have linked and non – linked products. Let’s understand the difference between them. Let’s start with linked. This company earns 55 % of their business with linked products. I’m sure you have heard about ULIP ( unit linked insurance plan ) but let’s understand what this is. Let’s imagine that I’m a customer and I keep paying my premiums consistently. A portion of the premium is utilized to provide insurance coverage and the remaining portion is invested in equity and debt instruments. So if the market moves up , my returns will be better but if the market goes down , my returns will decrease as well. So, it’s linked with the equity market. Now, let’s talk about non – linked products. 45 % of their business comes from this segment. Non-linked products offer you protection and savings element built in. There are 2 categories in non linked products. The first one is participating policies and the second one is non participating policies. The reason it’s called par policies is because you participate or share in the profits of the insurance company’s par fund together with an insurance coverage The second product is non par policies , which is your traditional product, where you keep paying your premium and if something bad happens , the company will compensate you . You don’t get any special payments here like par policies. Now , let’s take a look at how they sell these policies because many people think they sell all their product through their branches. You can see that they have various channels. The first one is bancassurance, which contributes 64 %. When a bank ties up with an insurance company to sell their product, it’s known as bancassurance. They have a big advantage here because everyone trusts HDFC bank. In the previous year, 28 % of their products were sold by HDFC group but they do have tie ups with other banks such as IDFC First and Bandhan bank. 4 % of the business comes from Brokers and 13 % comes from agencies. Please keep in mind when they get business from these sources, they will have to pay commission for this. Lastly , 19 % of this business is direct, which means it goes through them directly . Now let’s talk about the sector and how does it work. Most of the companies are able to recognize revenue and profit once they have sold their product. but it’s not the same with insurance companies and let me explain why. Let’s imagine that I own an insurance company and you want life insurance. Once everything is prepared , you will start paying your premiums, which is their first source of income but this is where all the problems start because even though I have started collecting premiums, I don’t know whether I will have to pay you back the money as claim or not because if something bad happens to you , I will have to compensate for it. That’s why we always look at the risk these companies are taking. We want them to take premiums but have as little claims as possible if we don’t have to pay too many claims , we keep earning good money through premiums. So , the premiums are the first source of income. Now , let’s understand what happens with their premiums. Let’s imagine that you start paying premiums to me for many years and nothing bad happens to you so I have premium as a company, which I don’t need right now as nothing bad happened. In this case ,I will invest this premium I will invest this in various places such as equities , bonds and real estate. As I will invest this money , I will be able to earn interest through that. This is their second source of income , which is investments. Many international companies earn bulk of their profits through investments. There is one last source of income. As this business becomes profitable , the company takes these profits and invests that as well. they are able to earn interest on that profits . These are their three main sources of income. Now , let’s take a look at their financials. I will start with the balance sheet. Normally , I show you assets ( properties , inventories and investment ) and on the other hand we have liabilities , which is debt but we will see something different in insurance companies let’s understand again how the business works. They make money through premiums and then they invest this amount. You can see they are basically dealing with money. So when we take a look at the balance sheet , we will see a big amount of money. Keep in mind , this is a debt free company. This is what you will see in the balance sheet. You already know this if you understood the business model. The first section shows you total source of funds. It shows you where the money is coming from. The first one is shareholder’s fund , which is 60 Billion Rs . As the company keeps earning profits , this money will be going in shareholder’s fund. So , they are showing you that 60 Billion Rs is coming from shareholder’s fund and below that you have Policyholder’s fund which is a bigger amount. You might be thinking why this number is so big. As I told you before , when they collect premiums , they know that in the future , they will have many claims to pay. That’s why it’s such a big amount. As it’s source of funds , it’s telling you that 1211 Billion Rs is coming from the premiums as they know that in the future , they will have to pay many claims. As I explained earlier , all the money they earn , they will invest it later and that is the second category . It’s showing you what they do with the money. So you can see that the shareholder’s fund , they invest nearly everything and they do the same with Policyholder’s fund. Now you understand why I wanted to explain the business model first. Now , let’s talk about their income statement and there are some changes here as well. Most of the companies have a simple product and they are able to make money once they sell their product but as I explain earlier , insurance companies earn through premiums and investments in this case , I will show you only premiums because I want to show you the growth they have in their core business Keep in mind that they will have many expenses such as comissions but I didn’t explain their biggest expense. As you know , they will be collecting premiums but they will have to settle many claims because something bad will always happen with some clients and this is their biggest expense , the claims they have to pay . Of course they have to pay commissions and there are many more expenses involved with the business in this case I will show you their premiums and their profit of the last three years As you can see , their premiums went from 19 274 crores in 2017 to 28 930 crores in 2019 . Their profits went from 886 crores in 2017 to 1277 crores in 2019 They have shown good growth in premiums and profits . Now, let’s talk about valuations and this is where it gets interesting. Let’s imagine that this company earns 100 CR of profit this year and 200 CR the next year. This is just an example. you might think this is a good thing but then , in the third year , they have to settle a lot of claims. This means that they will have to pay their clients and the money will go out of the business While we were getting excited for the profits of first and second year, now we realize that at the end , the company might not make so much money That’s why it’s so hard to value insurance companies. You might know the profit they earned this year but you don’t know the real expense that will come in the future Does this mean we can’t value these companies ? There is one metric that helps you , embedded value. The insurance companies tell you this value. So why is this so important ? Embedded value helps us understand all the future profits the company will achieve from all the business they have done until now. So if the company has given policies of 100 Rs , that won’t be their real earning because they will have some claims in the future and they invest this money as well so basically this value will tell you the value of this company based on all the business they have done until now plus this also includes some extra cash that they don’t need to run this business. Basically embedded value will tell us the value of the business and cash they have now. In this case , the embedded value of this company is 18 301 crores. In a way , we can say that the value of all the business they have done until now is 18 301 crores. You might be thinking that this is perfect because the company tells you the value of the business but there are some important points to know. The company is telling you the money they will earn in the future from the business done till now. This means that they have many assumptions. this means that this number is not perfect because it’s a future calculation. They already gave the policies but we don’t know how many claims they will get in the future. This number is based on many calculations and assumptions so it’s not an exact value but in this case , let’s assume they are right. If you take a look at the market cap , it’s 117 000 crores. So why such a big difference ? Embedded value is 18 301 crores and the market cap is 117 000 crores. Let’s understand the difference. Embedded value helps us understand the value of the business done till now but the company will keep doing business in the future and that’s why the company is so expensive and you see such a big gap between embedded value and market cap that’s because many people think this company will grow at 20 – 25 % their premiums and profits and this is where the problem lies. This is the main reason I won’t invest in this company. this gap you see between embedded value and market cap is a lot . This gap is much small in other companies in this company , it’s a very big gap because people expect this company to grow very quickly and they higher margins compared to other players but I would like this gap to be less I will consider investing when the gap is smaller don’t forget to subscribe to see more videos

Paul Whisler

99 Comments

  1. L I C ka ab bhi 70 % market share hai . Aur Baki 30% share saree private company ka hai .

  2. As a customer of their products, i can vouch their excellent skills in crosselling and even in cut throat competition they keep their customers without losing them and keep gaining new customers aggressively through their wide penetrating branch network in rural areas too, irrespective of share price it has huge run way for growth, so its PE never going to be cheap

  3. Mai hdfc life 2 aur sbi life ka 2 stock kharida tha aajhi accha profit me hdfc bech diya but sbi baadme kam hogaya 2 no me competition chalraha tha aaj kaun jyada uppar jata jai 😂 lekin baadme sbi log bechne laga tha i think to kam hogaya to mai bech nahi payi , yea 2 stock mujhe jyada kharidns chahiye tha lekin sbi thoda jyadahi daam hai , mai share khan k through invest kadrahi hu lekin sharekhan bohot jyada profit kharaha hai so mai zerodha me bhi ek account khola tha suna hai equity delivery me zerodha paysha nahi khata hai kya yea sahi baat hai #DrSagarRv ??? Mera Sharekhan Broker mujhe bolrahi hai dekhiyega waha jyada paysha khayga , taab aapko chorna padega maine bhi kiya tha mera jyada paysha chala gaya ishliye maine chor diya , kyuke mai bolatha tumlog bohot jyada profit khate ho ishliye mai zerodha karungi mujhe discourage kadrahi thi kitna badmash inlog khudlog jyada khaygi client ne paysha lagaya lekin client ko hi kam profit degi … 😈

  4. Motherson sumi reversed from 91 to 113 Which is the best price….U told that u will make a video bro…We are waiting

  5. Happy and sad at the same time…..
    Good information, but at the same time try to provide info on how to calculate fair value…..

  6. Nice one. Please do Firstsource solutions or time technoplast next. Both look like fantastic buys.

  7. Frnds hdfc amc ko currnt price pee lenaa chayie jan nichee aane ka chnce hai?? Kindly suggest ….mein invest krna chahta hai

  8. Bhai app stocks suggest mat kro please. Piramal Enterprise and IDFC first bank is falling like anything. People who have bought after watching your video are in losses now!

  9. Too basic. Expected lot more detail. Can you compare between margins and valuations between ICICI prudential, HDFC life, max life

  10. Sir please also make a video on ICICI prudential and ICICI Lombard for the comparison with HDFC life

  11. IDFC First hits your sweet spot of buy price. Did you start averaging out ?

  12. Very well anallised. Congrats for the same. Accordingly at what level HDFC life becomes investment worthy? WHICH IS YOUR PRFERED BET?

  13. Nice video Sagar. Would you like to review the implications of corporate tax rate cuts from 35 % to 25.17% on Indian stock market as a whole and if any specific company/industry would likely to get benefited in short/long term. Also can you review why Piramal is falling like a falling knife (I mean I do know that the deal with softbank was called off as per the papers but never knew that it would like this). Would urge you if you can kindly review the same. Thanks

  14. Very good info about the company. I have this stock in my portfolio. Thanks for the video.

  15. Suppose a company is growing profit yearly but nobody is ready to buy those shares,will the share price rise up

  16. Fundamental analysis stands when company makes profit quarter after quarter. If the profitibility doesn't grow then every thing is futile to analyse.

  17. Didn’t get that Gap point !! How does it impact on Investment decision ?

  18. Hi have.you removed your video regarding what price you'll buy IDFC Piramal and Motherson? Am not able to view that

  19. From where do you get all this information?? Through Annual Reports & Internet??

  20. Hey… IDFCFIRST BANK & MOTHERSON SUMI in your buying range . Do you like to invest… Plz tell..

  21. Thanks analysing n educating sir… really appreciate ur work…I watch all ur videos..good source of knowledge…

  22. The extra difference that you are talking about is the quality and transparency of management

  23. It is a nice video thank you.I have query , my status changed to nri and I have PF account – shall I withdraw it or leave it till I reach 60? If I leave it – will there be any issues ? Appreciate your advise don this .

  24. Lakin HDFCLife agor bandh ho jayega or ghate me jayega toh uska guarantee koi nahi leta hai. Means customer ka paisa secure nahi hai. Yea standard officewala froud ha.

  25. Great analysis and explanation. Always enjoy seeing how you do it simply and so transparently.

    It's good to see you Sagar, take care. Stay safe.

  26. The gap won't reduce infact it will grow as more investments will happen in this share due it's parent company and market leaders image …the same thing has happened with HDFC amc …people kept saying that it's too highly valued ..but the now it is almost out of many peoples hands as the investments areconly increaisng month after month due to the brand and the future prospects of the industry …don't forget that the insurance penetration in india is very low compared to the population and the future customer base is only increasing year after year …imo this is the last chance to invest in hdfc life as it will go past 1000 in next six months imo…

  27. hdfc life????Reliance nippon ????? gic ????? kise ling taim ke liye le 1300 shear lena he . konasa acha he long taim 5/7 year in topics pe video banye.

  28. Excellent analysis by u.
    I am holding this share.
    I will never ever sale this stock.
    It will be big wealth creation like other HDFC grp.

    Keep it up sagar.

  29. I disagree with u on two points, and agree with the rest. Good explanations. 1. An insurance company knows even the first year, there could be payouts, and the payouts is a continuous process, not limited to one particular year or years. 2. At the end – gap – it cannot b linked with its market price. .. I liked the video over-all.

  30. nice analysis, but if u see the only the valuation then u can't buy bajaj hdfc icici groups share.. quality never comes cheap. i guess u don't have hdfc amc hdfc life icici pru icici lombard sbi life bajaj finserv dmart reliance ind and reliance Nippon stocks… because u will not get valuation comfort here. so wait wait wait u will never get ur comfort price here, i have invested in high valuation and still got profit in portfolio holding more than 50% and still growing.. jo aah mahanga hai wo hi kal bhi mahanga rahega… jo sasta hai wo kisi wajah se sasta hai

  31. profit–886 1107 1277
    i want to know that pls teach me how to get this profit numbers .. how to calculate that profit

  32. What is the comfortable difference between embedded value and market cap?…. considering you are saying that difference is huge and you won't put money in it

  33. HDFC life me job karni chayie ya nahi isme me future growth kar sakta hu me ke nahi….??

  34. Sagar..Thanks much for these videos.
    Just love them.
    Simple, straight,informational, no nonsense and to the point videos. Your narration style and the way you present the overview with the business model and background with focus on Mgmt is very good. Keep going !!
    Request you to make a video on MAITHAN ALLOYS pls.

  35. Sir maine to invest Kar Diya hdfc life click 2wealth te.mujge Kya karna chahiye pls batao??

  36. Hi sir actully i want to join this hdfc life as corporate agency manager…mujhe door to door product bechna padega kya?

  37. The free cash flows of these cos are extremely high, wonder the Embedded value takes this into consideration!

  38. 15:46 इसिलिये मैं इस कंपनी में invest नही करुंगा। 😀😀

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