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* ICICI Prudential Life Insurance (IPRU), on expected lines, reported a further decline in margins to ~23.6% in Q4FY21 from ~25.7% in Q3FY21 amid rising demand for savings products (mainly ULIPs) as well as consolidation in the protection portfolio. Full-year margins stood at ~25.1%. Management expects to maintain this in the coming years.

* Management is focused on improving the growth profile in the coming years, with increasing bancassurance tie-ups and consistent launch of new products. The intention is to double FY19 VNB by FY23E. However, IPRU still lacks a clear path of growth. We are factoring in 14.7% VNB CAGR with steady margins at ~25% during FY21-24E.

* 13M persistency improved to ~84.8% from ~82.7% last quarter while 49M persistency remained around ~63%. The solvency ratio was healthy at 216.8%, backed by subordinate debt issuances of Rs12bn in last quarter. Management remains focused on improving persistency and managing efficiency to accelerate EV.

* Though we appreciate emerging clarity regarding growth over margins, we prefer to remain watchful due to volatile economic trends and a probable rise in claims amid the pandemic. We introduce FY24 to our estimates and raise TP to Rs506 from Rs492, corresponding to 2x P/FY23 EV. Maintain Hold and UW stance in Insurance EAP.

VNB margins to improve gradually:

We believe that overall insurance penetration in India is likely to rise post-Covid-19 as individual and corporate customers would be more cautious toward such a crisis. IPRU management intends to improve the margin trajectory further with increased focus on protection plans amid a consistent dip in the share of ULIPs. However, we remain skeptical about this strategy as the current social distancing norms might lead to an increase in bancassurance share, which would be more tilted toward ULIPs. Management’s focus is on improving the growth profile in the coming years by increasing bancassurance tie-ups and launching new products consistently. The intention is to double FY19 VNB by FY23E. However, in our view, a clear growth path is still missing. We are factoring in 14.7% VNB CAGR with steady margins at ~25% during FY21-24E.

Sharp decline in premium receipts:

IPRU reported flat absolute APE yoy in Q4FY21, with a gradual revival in demand for insurance products. Retail APE decline was steep, indicating that the group APE business has performed relatively better.

Outlook and valuation:

We are introducing FY24 to our estimates and are increasing TP to Rs506 from Rs492, corresponding to 2x P/FY23 EV. We maintain our Hold rating and UW stance in Insurance EAP. Though we appreciate emerging clarity on growth over margins, we prefer to be watchful due to volatile economic trends and a probable rise in claims amid the pandemic.

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