DCF Studio

    HDFCLIFE.NS · NSI · Financial Services

    HDFC Life Insurance Company Limited

    Also onConsensus Drift

    Implied value per share

    INR 89.51

    Market price

    INR 550.95

    Implied upside

    -83.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReported capital expenditure averages just 0.23% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.1%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.
    NoteRisk-free rate is an assumption: INR assumption - no free live source available for this market.

    Current EV/EBITDA of 55.5x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    INR 89.51-83.8%
    Exit multiple
    INR 188.42-65.8%
    Market price
    INR 550.95

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (INR). Outflows negative.

    0bn6bn12bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayINR
    LineFY27FY28FY29FY30FY31CAGR
    RevenueINR 1000.8bnINR 1093.4bnINR 1194.6bnINR 1305.1bnINR 1425.9bn+9.3%
    EBITINR 19.2bnINR 21.0bnINR 23.0bnINR 25.1bnINR 27.4bn+9.3%
    NOPATINR 18.7bnINR 20.4bnINR 22.3bnINR 24.3bnINR 26.6bn+9.3%
    Add depreciation & amortisationINR 1.2bnINR 1.3bnINR 1.4bnINR 1.6bnINR 1.7bn+9.3%
    Less capital expenditureINR -10.0bnINR -10.9bnINR -11.9bnINR -13.1bnINR -14.3bn+9.3%
    Less increase in working capitalINR -1.5bnINR -1.7bnINR -1.8bnINR -2.0bnINR -2.2bn+9.3%
    Free cashflow to firmINR 8.3bnINR 9.1bnINR 9.9bnINR 10.8bnINR 11.8bn+9.3%
    Discount factor0.94490.84370.75340.67270.6007-
    Present valueINR 7.8bnINR 7.7bnINR 7.5bnINR 7.3bnINR 7.1bn-2.4%
    Present Value Of The ForecastINR 37.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate6.80%INR assumption - no free live source available for this market (assumption)
    Equity risk premium8.00%Market assumption
    Beta0.664Reported 0.499, pulled toward 1.0 (Blume)
    Cost of equity12.11%Risk-free + beta x equity risk premium
    Cost of debt7.56%Interest expense / average total debt
    Market capitalisationINR 1196.7bn97.5% of capital
    Total debtINR 31.0bn2.5% of capital, book value as a proxy
    Tax rate3.1%Effective, capped at statutory
    WACC11.99%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareINR 89.51

    79% of EV

    Forecast FCFF, final year
    INR 11.8bn
    Capex at depreciation, working capital in reinvestment
    INR 26.6bn
    Less reinvestment at g/ROIC (20.8% of NOPAT)
    INR -5.5bn
    Capitalised
    INR 21.0bn
    ROIC (WACC floor)
    12.0%
    Terminal value, undiscounted
    INR 227.1bn
    Terminal value, discounted
    INR 136.4bn
    Enterprise value
    INR 173.8bn
    Less net debt
    INR -19.4bn
    Equity value
    INR 193.2bn

    Exit at 20.0x EBITDA

    Value per shareINR 188.42

    90% of EV

    Terminal value, undiscounted
    INR 582.6bn
    Terminal value, discounted
    INR 349.9bn
    Enterprise value
    INR 387.3bn
    Less net debt
    INR -19.4bn
    Equity value
    INR 406.7bn

    Spread between methods: 71%.

    Sensitivity

    Value per share (INR) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    9.99%108.55108.95109.35109.75110.15
    10.99%97.7898.1398.4898.8399.18
    11.99%88.8989.2089.5189.8290.13
    12.99%81.4481.7181.9982.2682.53
    13.99%75.1175.3675.6075.8476.09

    Outlined: this model. Green text: above today's price of 550.95. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year9.3%66.5%+57.3pp
    EBIT margin1.9%10.6%+8.7pp
    Discount rate12.0%4.0%-8.0pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.