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Slow paced revenue growth along with increased commission: ICICI Prudential reported Q2FY24 net premium income growth of 4.6% YoY to Rs 10,022 Cr which was led by single premium which grew by 7% YoY to Rs 3,005 Cr. Annualized Premium Equivalent (APE) increased by 3% YoY to Rs 2,063 Cr remaining slightly below consensus. Net commission during the quarter increased by 87% YoY to Rs 771 Cr due to the regulatory norms leading to increase in overall cost ratio to 26.2% from 21.6% in Q2FY23. Owing to the increased costs, shareholder’s account surplus/ (deficit) saw a de-growth of 42% YoY to Rs 301 Cr

Linked products continue to see traction: The insurer continued to see an uptick in the linked products which increased by 13% YoY to Rs 927 Cr in the overall APE mix. Non-linked and annuity products continued to see the downward momentum as they saw a YoY decline of 7.6% and 6.7%, respectively on APE basis. The decline was mainly due to shift in consumer preference from non-linked to the linked products and the company saw a shift in the large ticket policies (more than Rs 5 lakhs premium) from non-linked to linked products. Protection plan growth during the quarter remained sluggish as the company encountered supple side challenges, however, expects protection plans to be back on track during FY24.

Dip in margins: Owing to the increased cost and continued shift in the product mix, Value of New Business (VNB) declined by 7.1% YoY to Rs 577 Cr. VNB margin during the quarter declined by 227bps YoY to 28%. The management remains positive has the margin will recover going forward due to the recovery in protection and annuity plans.

Direct and partnership channels drive growth: The bancassurance channel which contributes ~28% of the overall APE mix declined by 3% YoY to Rs 579 Cr mainly due to decline in premium from the parent ICICI Bank while it continued to grow its other banks channel which saw an increase of 13% YoY to Rs 296 Cr on APE basis. The company continued investment in partnership channels has paid off well as it grew by 24.6% to Rs 294 Cr on APE basis after slow Q1. The group channels also saw a de-growth of 11.8% to Rs 351 Cr on APE basis. The management expects agency and partnership channels to continue to drive growth going forward in FY24.

Valuations: We remain positive on ICICI Prudential as the company continues to see growth in the linked products and its continuous focus on expanding capacity. The expanding capacity strategy is expected to see results in the coming quarters which will lead to an increase in the market share by the company. However, on the margin front cautiousness continues as it saw a dip during the quarter. On financial front, we expect APE/NBP/VNB to grow at 19% each CAGR over FY23-25E but margin growth slightly revised downwards to 32% for FY25E. Thus, maintaining a Buy rating our target price is revised slightly lower to Rs 640 valuing the company at 1.8x of its FY25E embedded value (EV) per share.  

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