Hold ICICI Prudential Life Insurance Ltd For Target Rs. 492 - Emkay Global
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Margin decline on expected lines
* VNB margins sharply declined to ~25.7% in Q3FY21 from ~27.4% decline on expected lines in Q2FY21 amid rising demand for ULIP products and consolidation in the protection portfolio. This is the same concern we have been highlighting for the past couple of quarters when the company has been reporting a sharp surge in margins.
* 13M persistency dropped to ~82.4% from ~83.7% last quarter and 49M corrected to ~61.3% from ~63.9% last quarter. The solvency ratio remained healthy at 226% in Q3, backed by subordinate debt issuances of Rs12bn during the quarter.
* Although we appreciate management’s consistent focus on increasing the share of protection plans, we remain skeptical of the elevated ULIP portfolio and expect ULIP share to rise with stability in equity markets. ULIP share is back to pre-Covid levels and stands at ~84.6% against ~74% during Q1FY21.
* We expect VNB margins for FY21 to correct further to ~25.6% from ~26% in 9MFY21 and expect VNB to grow at a CAGR of ~6.9% to Rs19.6bn during FY20-23E. We increase the TP to Rs492 (Rs456 previously), corresponding to 1.9x P/FY23 EV. We maintain our Hold rating and UW stance in Insurance EAP.
VNB margins to improve gradually:
We believe that the overall insurance penetration in India is likely to rise post-Covid-19 as individual as well as corporate customers would be more cautious toward such crisis. IPRU management intends to improve the margin trajectory further with an increasing focus on protection plans and a consistent dip in the share of ULIPs. However, we remain skeptical of the same as the current social distancing scenario would increase the share of bancassurance, which would be more tilted toward ULIPs. We expect VNB margins for FY21 to correct further to ~25.6% from ~26% in 9MFY21 and then consolidate at similar levels for FY22-23E.
Sharp decline in premium receipts:
IPRU reported flat absolute APE on a yoy basis during Q3FY21, with a gradual revival in demand for insurance products. Retail APE decline is sharper, indicating that the group APE business for the company has performed relatively better.
Outlook and valuation:
Maintain Hold/UW in EAP: We expect VNB margins for FY21 to correct further to ~25.6% from ~26% in 9MFY21 and expect VNB to grow at a CAGR of ~6.9% to Rs19.6bn over FY20-23E. We increase our TP to Rs492 (Rs456 previously), corresponding to 1.9x P/FY23 EV. We maintain our Hold rating and UW stance in Insurance EAP.
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