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Flat top-line, increase in costs: ICICI Prudential’s (IPRU) top-line remained muted in Q1FY24 as net premium income increased by 2% YoY to Rs 7,020cr. The flat net premium income was mainly due to decline in first year premium and single premium by 2% YoY and 6% YoY, respectively. Even though, the premium income remained flattish, net commission remained elevated at 25% YoY as first year commission and single commission saw a growth of 23% YoY and 94% YoY, respectively. Annualized premium equivalent declined by 4% YoY to Rs 1,460cr.

VNB margins remained under pressure: The private insurer’s value of new business (VNB) saw a decline of 7% YoY to Rs 440cr as cost increased. The management iterated that the increase in cost was mainly due to increase in manpower cost and expanding capacity utilization and expects to yield its results in the next two quarters going forward.

Rise of ULIPs in product mix: The product mix in terms of APE saw increase in the share of ULIPs from 27% in Q4FY23 to 38.8% in Q1FY24. While ULIPs share increased, non-participating products saw a decline from 51.4% in Q4FY23 to 27.7% in Q1FY24. The decline in non-participating mix was expected due to the accelerated sales in this product segment in the last quarter to avoid taxation norms. Protection plans continued to maintain its growth momentum to 24% of the total APE mix. The management expects to increase its footprint in all the segments as consumer preference changes rapidly in the changing environment.

Distribution channels: The company Bancassurance channels remain steady as it contributed 29% of the total APE with equal contribution from both ICICI Bank and other banks. It has partnership with 29 banks providing access to more than 19,000 bank branches. Other than bancassurance channels, direct and group also saw increase in the APE share which was driven by analytics driven upsell channel. The management shall continue to invest in these distribution channels going forward to reach its customers.

Persistency ratio improvement: IPRU’s another positive element for the quarter was improvement in overall persistency levels. The 13th month and 61st month persistency ratio levels improved by 80bps YoY and 630bps, respectively. The management remains confident of its existing product line-up and aims to continue with the same products going forward.

Valuation: We remain positive on the insurance company as we believe that the company will see business growth going forward. We believe the growth will be driven by the company’s capacity expansion and establishing relationships with the banking partners. The growth in ULIP products if sustained will be another driver for growth of the company. We have revised the target price of the company upwards to Rs 679 and also changed rating to Buy from Accumulate valuing the company at a P/EV of 1.9x of its FY25E embedded value per share.

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