Shares of HDFC Life Insurance Company rose over 4% in early trade on Tuesday and led the top gainers' chart on the BSE Sensex. In the previous session, the stock witnessed volatility and settled marginally higher after the insurance company received a Goods and Services Tax (GST) demand notice of ₹942 crore. The Directorate General of GST Intelligence (DGGI) had slapped a GST demand notice on HDFC Life for claiming an input tax credit against the supply of services. The company had on June 23 informed the bourses that "this is an industry-wide issue and the company will be taking appropriate steps in due course to reply to the show-cause notice and contest the matter. It may be noted that ₹250 crore has been deposited under protest with the authority in this matter in the past".
HDFC Life shares opened at ₹640.05, up 1.5% against the previous closing price of ₹630.45 on the BSE. In the first hour of trade so far, the largecap stock gained as much as 4.1% to ₹656.45, with 0.8 lakh shares changing hands on the BSE as compared to two-week average volume of 1.39 lakh stocks. The market capitalisation stood at ₹1.39 lakh crore at the time of reporting.
The share price of HDFC Life trades near its 52-week high of ₹659.90 touched on June 21, 2023, while it has risen 43% against its 52-week low of ₹457.95 hit on March 16, 2023. The insurance major has delivered 16% returns to its shareholders in the last one year; 13.5% in six months; nearly 12% in a month. In the last one week, the counter has lost over 1%.
So far in 2023, HDFC Life Insurance shares have risen over 13% as most of analysts remained bullish on the stock the company would derive benefit from the merger of HDFC-HDFC Bank. The stock traded near the average brokerage target price of ₹647.12, with a price-to-book value of 10.71.
Last week, the Competition Commission of India gave approval to mortgage lender HDFC to acquire over 50% stake in HDFC Life. This means, HDFC Bank will own over 50% stake in HDFC Life following the amalgamation of HDFC with the private lender. As per the latest shareholding pattern available on the BSE, promoter group entities hold a 50.31% stake in HDFC Life, including 48.65% by HDFC, and the remaining shares are owned by public shareholders.
In April this year, the Reserve Bank (RBI) of India allowed HDFC Bank or HDFC to raise their shareholding in both insurance companies - HDFC Life and HDFC ERGO - to over 50% prior to the effective date of the merger. For priority sector lending norms (PSL), the RBI said that adjusted net bank credit (ANBC) may be computed considering one-third of the outstanding loans of HDFC as of the effective date of the merger for the first year. The remaining two-thirds of the portfolio of HDFC will be considered over the next two years equally. Besides, the central bank further clarified that the bank will have to comply with cash reserve ratio (CRR), statutory liquidity ratio (SLR) and Liquidity Coverage Ratio (LCR) requirements.
According to domestic brokerage Prabhudas Lilladher, this relaxation will be a positive for HDFC Life and HDFC AMC as it would remove the overhang of Return on equity (ROE) dilution in the merged entity due to likely stake sale of subsidiaries/associates.
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