Buy ICICI Prudential Life Insurance Comp Ltd For Target Rs. 600 - Motilal Oswal Financial Services
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VNB margin hit by adverse product mix
Persistency trend healthy across cohorts
* ICICI Prudential Life Insurance (IPRU) reported a 3.2% YoY growth in APE (in line) to INR20.6b in 2QFY24. The protection segment grew 2.6% YoY while the annuity segment declined 6.7% YoY during the quarter.
* VNB declined 7% YoY to INR5.8b (8% miss) due to moderation in margins. VNB margin for the quarter stood at 28.0% (a 200bp QoQ decline) vs. MOSLe of 30.4%. For 1HFY24, APE stood at INR35.2b and VNB was at INR10.1b with a VNB margin of 28.8%.
* Considering IPRU’s 1HFY24 performance, we have cut the APE/VNB margin for FY24 and FY25. We expect IPRU to deliver a 16% CAGR in VNB over FY23- 25. This will be fueled by a combination of premium growth and a slight improvement in margins, thereby enabling an operating RoEV of ~18% over FY23-25E. Reiterate BUY with a TP of INR600 (based on 1.7x Mar’25E EV).
Share of ULIPs rises to 45%
* IPRU’s gross premium grew 5.4% YoY to INR104.2b (in line) in 2QFY24. Renewal premium grew 4.4% YoY while first-year/single premium increased 5.9%/7% YoY.
* IPRU’s PAT grew 22% YoY to INR2.4b in 2QFY24 (in line). On the other hand, its PAT jumped 27% YoY to INR 4.5b in 1HFY24. ? APE grew 3.2% YoY to INR20.6b (in line). In 2QFY24, the protection segment rose 2.6% YoY, while the annuity segment declined 6.7% YoY.
* The share of retail protection in total protection increased 74% YoY. The mix of protection in the overall mix was 18.9% in 2QFY24 vs. 19.0% in 2QFY23 and 23.5% in 1QFY24.
* VNB declined 7% YoY to INR5.8b (8% miss) due to moderation in margins. VNB margin for the quarter stood at 28.0% (a 200bp QoQ decline) vs. MOSLe of 30.4%.
* On the distribution side, the banca channel remained weak due to sustained weakness in the ICICI Bank channel and steady trends in nonICICI Bank partners. On a sequential basis, the mix of agency and partnership distribution channel improved. ICICI Bank now contributes 13.7% to the overall APE of IPRU.
* Cost-TWRP escalated 500bp YoY to 24.9% during 2QFY24. Savings business cost for 1HFY24 stood at 17.2% vs. 14.4% in 1HFY23.
* On the persistency front, all cohorts witnessed a YoY improvement except the 13th Month. On a premium basis, the 13th month persistency improved 120bp QoQ to 85.6% while the 49th month persistency improved 210bps to 67.9%.
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