Buy ICICI Prudential Life Insurance Company Ltd for the Target Rs. 700 By Prabhudas Lilladher Ltd
Quick Pointers
* APE growth picking up; near-term outlook watchful
* Q4 VNB margin at 25.2%; expect improvement by 35/30 bps in FY27/ FY28E
While APE growth saw a healthy pickup (+9.4% YoY) in Q4 driven by strong traction in protection and steady momentum in linked savings, non-linked and annuity segments moderated due to base normalization and product mix shifts. We expect growth to gradually improve (8%/ 10% YoY in FY27/ FY28E) supported by sustained demand in protection; however near-term outlook remains watchful amid macro uncertainties. Despite ITC-related impact and persistency changes, Q4/ FY26 VNB margin improved to 25.2%/ 24.7% driven by favourable product mix, higher rider attachment/ tenure and improving cost efficiencies. We increase our FY27- FY28E VNB margin estimates by 30-35bps, factoring a sustainable improvement in margin profile. We use the appraisal value framework to value IPRU and roll-forward to FY28 with a TP of Rs700 (1.9x FY28E P/EV). Reiterate BUY as valuation continues to be undemanding.
* Growth improves but caution persists: IPRU Life saw pick-up in APE growth by 9.4% YoY in 4QFY26 to INR 38.3bn driven by strong traction in linked savings and protection (+15%/ 30% YoY). While protection continues to be benefited by the GST-led tailwinds, linked products remained sensitive to market conditions. The decline in non-linked (-21%) and annuity (-6%) in Q4 was driven by base normalization following strong product-led growth in the prior year and shift towards single premium annuities. Linked / Non-Linked / Annuity / Group / Protection comprised 46% / 21% / 6% / 11% / 16% of APE in 4QFY26. Company expects growth to gradually improve led by granular customer segmentation and sustained protection demand, although near-term outlook remains cautious given macro volatility. We build an APE growth of 8%/ 10% in FY27/ FY28E respectively.
* Strong VNB growth with sustainable margin expansion: 4QFY26 VNB grew 21% YoY to Rs9.7bn while Q4 VNB margin rose to 25.2% (24.7% in FY26) led by favorable shift in product mix, higher rider attachments/ longer policy tenure and continued cost efficiencies. This was offset by loss on ITC and persistency related assumption changes. The company indicated that current margin levels are a sustainable baseline with further upside driven by continued protection-mix expansion and cost discipline. We increase our FY27/FY28E VNB margin estimates by 35/30bps driven by stronger than expected performance in FY26 and better visibility on sustainable cost efficiencies.
* 61M persistency trend decline; capital remains strong: 13M persistency improved to 84.5% (vs. 84.4% in Dec-25), however on a YoY basis, there was a decline due to weakness in the annuity business. 61M persistency saw a decline to 61.6% (vs. 61.8% in Dec-25) due to changes in regulatory definitions. The company continues to monitor underperforming cohorts with corrective actions at product and distribution levels. AUM growth was flattish at 1% YoY to INR 3,136.3bn and Solvency ratio stood at 227.3%, sufficiently above the regulatory threshold of 150%.
* Partnership distribution grows; cost in-line: Agency/ Direct/ Banca/ Partnership Distribution/ Group contributed 23%/12%/32%/13%/20% to overall APE in 4QFY26. While partnership distribution grew 18% YoY led by retail protection, agency witnessed a de-growth of 3% YoY. The company expects gradual recovery in agency growth by focusing on improving productivity through micro-market strategies and technology-led analytics. Moreover, banca grew by 5% YoY with a stable run-rate for ICICIB while direct channel was largely flat YoY (+1% YoY). Total Cost/ TWRP in FY26 was largely in-line at 18.2% (vs. 18.1% in FY25) reflecting operating leverage and continued focus on efficiency.
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SEBI Registration number is INH000000933c
