ICICI Prudential Life Insurance - VNB trajectory in-line despite YoY dip in protection in Q2 - ICICI Securities

Despite the challenging times, ICICI Prudential Life Insurance (IPRU) has been successful in clocking Rs4bn absolute VNB in Q2FY21 (flat YoY) driven by increase in non-linked savings (45% growth YoY in Q2FY21). However, protection APE declined by ~10% YoY in Q2FY21 (flat credit life, ~15-20% dip in retail protection). Our expected FY22E VNB of Rs18bn factors-in growth in protection (~15% CAGR between FY20-FY22E) and recovering savings growth on an already weak base of FY20 (expect a dip in FY21E and recovery in FY22E to register ~4% decline in FY22E savings APE over FY20). Protection margin can stabilise while savings margin can improve with growth in non-linked savings. Maintain BUY with a revised target price of Rs475 (earlier Rs451) implying 2.2x FY22E EV of Rs310bn. Our VNB / VNB margin estimates stand at Rs14.5 / 24.1% and Rs18.3 / 25.4% for FY21E / FY22E respectively.

- Absolute VNB at Rs4bn in Q2FY21 has reached the same run rate as FY20 (Rs16bn) driven by higher margins (27% in Q2FY21). QoQ, there has been 95% growth in ULIP APE whereas non-linked savings have grown 45% YoY to Rs4.4bn in Q2FY21. However, protection APE has declined 10% YoY to Rs4.5bn in H1FY21. Individual protection declined ~15-20% whereas credit protect has restored to similar level YoY. Margin was also aided by impact of protection price hikes in Q2FY21.

- Levers of growth include bancassurance tie-ups, which too will incrementally improve non-linked savings mix and revival in ULIPs. IPRU has made tie-ups with IDFC First Bank, Yes Bank, NSDL Payments Bank and Indusind Bank in the past four months. This will aid volume growth, especially in the non-linked savings mix as ICICI Bank continues to abstain from traditional savings products. However, there are competing players like HDFC Life, Tata AIA, Max Life in the said banks.

- Persistency has shown QoQ improvement but remains lower YoY, yet is within assumptions. Excluding single premium, 13/25/37/49/61-month persistency for 5MFY21 came in at 82.1/73/65.2/63.8/57.5 vs 2MFY21 of 81.8/73.4/65.4/63.9/ 56.8 vs 11FY20 of 83.2/75.1/66.7/64.6/56.

- Could H1FY21 be a peak for VNB margin? With increased competition and majority pricing actions already played out in H1FY21, protection could have seen a peak Q1FY21. Sequential weaker performance in protection has been an industry-wide phenomenon. As such, IPRU will depend on revival of savings volumes going ahead.

- Maintain BUY. We factor in -15%/+20% growth in FY21E/FY22E APE with VNB margin remaining at 24%/25.4% for the two years respectively. Factoring-in unwind at 7.5%, we arrive at EV of Rs310bn/352bn for FY21E/FY22E. There has been Rs12bn total variance in H1FY21 (impact of market recovery from Covid). We ascribe a multiple of 20x to FY22E VNB of Rs18.3bn (VNB can decline in FY21) to arrive at a target price of Rs475 (implied FY22E P/EV of 2.2).

Shares of ICICI Prudential Life Insurance Company Ltd was last trading in BSE at Rs.408.7 as compared to the previous close of Rs. 408.55. The total number of shares traded during the day was 17898 in over 1010 trades.

The stock hit an intraday high of Rs. 409.5 and intraday low of 403.85. The net turnover during the day was Rs. 7281003.

Source : Equity Bulls

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