ICICI Prudential Life Insurance - Lower costs, higher protection drive beat! - Q4FY20 Result Review - HDFC Securities

Despite a 1.7% lower than expected FY20 APE of Rs 73.8bn, IPRU's reported FY20 VNB of Rs 16.1bn was 3.5% above expectation. Higher protection mix and lower expenses drove VNB margins higher 470bps YoY to 21.7%.

- APE: Despite a strong performance in the group APE (+127.9/121.9% YoY/QoQ to Rs 2.5bn), total APE declined 19.6/3.3% YoY/QoQ to Rs 19.7bn. Retail APE declined 26.6/10.5% YoY/QoQ to Rs 17.2bn

- Protection: Indiv. protection at Rs 2.2bn (+6.6/3.3% YoY/QoQ, 11.0% share) continues to trend higher even in a difficult environment. Group protection APE grew by ~1.4x both on YoY/QoQ basis. Growth seems to be primarily driven by credit protect. Protection share increased to 17.8% (+720bps YoY).

- Decline in ULIP sales (43.3/22.7% YoY/QoQ) continues to weigh on overall APE growth. Environment remains difficult for ULIP sales.

- FY20 VNBM at 21.7% (+470bps YoY) was a result of 1) business mix (+470bps), 2) higher effective tax rate due to removal of DDT (-110bps), 3) assumption changes (10bps), and 4) lower expenses (+100bps).

- Management indicated that protection business contributed to 59.7% of FY20 total VNB. Protection margins were lower by 2,340bps at 85.8% as within mix tilted towards lower margins limited pay variant.

- Cost/TWRP improved significantly to 14.0% (-190/-260bps YoY/QoQ) for overall business, while cost/TWRP of savings business was at 8.5% (-10/- 280bps YoY/QoQ). Management stated that focus on reducing variable costs in 4Q resulted in meaningful decline in costs.

- AUM declined 4.6/11.0% YoY/QoQ to Rs 1.53tn with 40% equity in mix.

- FY20 PAT was lower by 6.4% YoY at Rs 10.7bn.

- Near-term outlook: Stock to time correct until clarity emerges on new insurance sales in FY21E.

- We like IPRU's re-engineered business model which is focused on a more diversified product mix along with an increased protection share. We expect VNB to grow at FY19-22E CAGR of 2.8%. We however remain wary of the current Covid-19 situation and believe that outlook for FY21E remains hazy. Lower than expected growth in FY21E may delay goal of doubling VNB by FY23E. We rate IPRU a BUY with a TP of Rs 460 (Mar21E EV + 21.1x Mar-22E VNB).

Shares of ICICI Prudential Life Insurance Company Ltd was last trading in BSE at Rs.402.8 as compared to the previous close of Rs. 383.8. The total number of shares traded during the day was 213711 in over 6834 trades.

The stock hit an intraday high of Rs. 405.3 and intraday low of 376.4. The net turnover during the day was Rs. 83888566.

Source : Equity Bulls

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