Add ICICI Prudential Life For Target Rs. 625 - Yes Securities
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Result Highlights (See “Our View” below for elaboration and insight)
? VNB margin: Calculated VNB margin decreased by -200bps QoQ to 28.0% driven lower mainly due change in business mix
? VNB growth: VNB grew/de-grew 31.7%/-7.1% QoQ/YoY, where the YoY de- growth was aided by deterioration of -308bps in calculated VNB margin
? APE growth: New business APE grew 41.1% QoQ and 3.2% YoY, where the sequential growth was driven by Savings Linked and Group Funds segments
? Expense control: Expense ratio fell/rose -210/388 bps QoQ/YoY as opex ratio fell/rose -433/50bps QoQ/YoY and comm. ratio rose 223/338 bps QoQ/YoY
? Persistency: 13th month, 37th month and 61st month persistency ratio improved/deteriorated sequentially by 120bps, -90bps and 50bps respectively
Our view – Dual growth and margin challenges warrant downgrade
Product mix is evolving in such a manner that there is material pressure on VNB margin: The share of low-margin ULIP has risen in product mix. Further, customers have moved away from high-margin guaranteed products and into low-margin Par business and also into ULIP. Share of high-margin Annuities has also declined. While share of highmargin retail protection has risen, its overall share is still too low to move the needle
Overall growth, though slightly improved, is still weak in the absolute sense with both segments and distribution disappointing: ICICI Bank channel has de-grown 15.3% YoY in 2Q. The only product they seem to be intent on selling is protection, which has grown 45% on the platform. The agency channel has grown slowly at 4.2% YoY in 2Q. While growth from May to August was good, growth slowed materially in September. Segments that were doing well earlier have started to disappoint.
Faster evolution of operating expenses is being flagged as sticky by the management: Total expenses have grown 27% YoY in 1HFY24. Cost to TWRP for savings line of business was at 17.2% for 1H as against 14.2% for FY23. The company continues to invest in capacity building leading to high opex growth. The rise in opex will take some time to settle down.
We downgrade to ‘Add’ rating on IPRU with a revised price target of Rs 625: We value IPRU at 1.9x FY25 P/EV for an FY24E/25E/26E RoEV profile of 15.7%/15.7%/15.8%.
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