Research

HDFC Securities Institutional Research Desk - Report on ICICI Prudential Life - Stellar margins offset weak APE

Posted On : 2022-10-18 21:55:10( TIMEZONE : IST )

Sahej Mittal, Institutional Research Analyst, HDFC Securities and Krishnan ASV, Institutional Research Analyst, HDFC Securities.

ICICI Prudential Life - Stellar margins offset weak APE

ICICI Prudential Life (IPRU) reported a weak APE growth (+1.7% 3-year CAGR, in line with estimates); however, VNB margins, at 31%, surprised (200bps ahead of estimates), translating into 21% YoY VNB growth. We like the company's reengineered business model, which is focused on a more diversified product and channel mix, industry-leading share in sum assured (H1FY23: 15.7%), and rising share of traditional products. Although we remain sceptical of the profitability and sustainability in group protection business, we are encouraged to see sustained momentum from the non-ICICIBC channel to aid future growth. We expect VNB to clock a 15% CAGR over FY22-25E. We retain ADD with a target price of INR690 (2.2x Sep-24E EV). The stock is currently trading at 1.8x P/EV and 13x P/VNB on Mar-24 estimates.

Stellar margins continue: Total APE growth was sluggish at 1.7% 3-year CAGR (+1% YoY); however, in the overall mix, group protection continued to exhibit strong growth (+70% YoY), primarily on the back of new group-term arrangements whereas retail protection witnessed sustained weakness (-41% YoY); ULIP sale was soft (-19% YoY) due to volatile capital markets. Banca partners, other than ICICIBC, clocked healthy growth (+10% YoY) (ICICIBC: -46% YoY), accounting for 13% of channel mix (ICICIBC: 16.8%). VNBM was 200bps ahead of estimates at 31% (+500bps YoY), benefitting from higher mix of group protection (+630bps YoY) and annuities (+270bps YoY) business, driving VNB +21%YoY to INR6.2bn and EV to INR326bn (+8% YoY).

Growth outlook: Management remains confident on the profitability of the group term protect business despite pricing reverting to pre-pandemic levels. We remain sceptical of sustainable growth and operating experience in this segment. Management highlighted that the demand for term protection is soft, after normalisation in COVID cases, and expects it to pick up from H2FY23 onwards. In this environment, the company is focused on using ROP policies and ULIPs (combined with riders) as an entry strategy for the mass and mass-affluent customer segments. IPRU is aggressively expanding its agency network with 15.5k additions in H1 (FY22: 25k) to ramp up new business.

Shares of ICICI Prudential Life Insurance Company Limited was last trading in BSE at Rs. 513.50 as compared to the previous close of Rs. 509.50. The total number of shares traded during the day was 25447 in over 1076 trades.

The stock hit an intraday high of Rs. 514.25 and intraday low of 501.25. The net turnover during the day was Rs. 12908559.00.