IGI Logo

Positive surprise on margins; APE growth tepid

In 3QFY23, ICICI Prudential (IPRU) reported APE of INR 18.2bn registering degrowth of 5.5% YoY vs 14% for private peers owing to degrowth in linked business. On unweighted basis, IPRU reported +4% YoY premium growth in 3QFY22, lower than the industry (+19%). In terms of product mix, 3QFY23 APE saw a 1030bps YoY decline in ULIP share while nonlinked, protection, group and annuities witnessed a jump of +420bps, +280bps, +180bps and +170bps YoY resp. For the 9MFY23, IPRU generated NBV of INR 17.1bn, a growth of 23% YoY driven by a) better product mix with c.580bps YoY higher share of traditional savings (incl. annuities), and b) 130-340bps YoY improvement in retail persistency across buckets, even though APE growth was tepid. Accordingly, margins improved 490bps YoY to 32.0%. Along with the product mix, IPRU has diversified the distribution mix as well – distribution mix for the 3QFY23 saw a sharp drop in share of banca to 27% of APE vs 40% last year with APE from ICICI Bank banca down 50% YoY while non ICICI Bank banca was up 2.2% YoY. Further, share of group, partnership and agency distribution was up +510bps, +330bps and +250bps YoY resp. On the cost front, expense ratios inched up YoY with savings LOB expense ratio increasing to 13.9% for 9MFY22 vs 12.2% last year. Solvency was steady at 212% as of Dec’22, up 11.5ppts QoQ. We expects key parameters to change in favour of ICICI Pru Life – a) comeback of APE growth, b) balanced product mix to expand NBMs, and c) non-ICICI Bank channels gaining dominance, which, in turn, should help ICICI Pru Life to rerate upwards. IPru Life is currently trading at an undemanding valuation of 1.7x FY24E EV, and we expect a material rerating in it, going ahead. We value ICICI Pru Life at 1.8x FY25E EV to arrive at our TP of INR 600. Maintain BUY

* 3Q APE growth impacted by ULIP: In 3QFY22, ICICI Prudential (IPRU) reported APE of INR 18.2bn registering degrowth of 5.5% YoY vs 14% for private peers owing to degrowth in linked business. On unweighted basis, IPRU reported +4% YoY premium growth in 3QFY22, lower than the industry (+10%). For 9MFY23, IPRU reported APE growth of 4.2% YoY vs 18% for private peers and 21% for the industry. Accordingly, IPRU’s market share has dipped 180bps YoY in the private sector YTD to 9.8%. In the overall market too, IPRU has lost 110bps YoY in YTD APE market share to 5.5%. We are building in APE CAGR of 12% over FY22-25E driven by scale-up of new partnerships, and new launches in the traditional products space.

* Share of ULIPs decline: ICICI Pru Life’s product mix, in the past, used to be dominated by high ULIP share (contributed 65% of APE in FY20). However, with increased market volatility and the insurer’s strategy to diversify away from ULIPs and increase its focus on higher-margin non-par savings, protection and annuity products, the share of ULIPs has corrected to 43% in 3Q23. Further, share of traditional savings (incl annuity) and protection increased to 35% and 19% resp (+580bps and +280bps YoY). We expect ICICI Pru Life to achieve a more balanced product mix (with lower volatility) with share of protection, annuity and non-par increasing

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer