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Higher costs and adverse product mix impact VNB

Guides APE growth in line with industry and steady VNB margins

* In 4QFY24, ICICI Prudential Life Insurance (IPRU) reported 9.6% YoY growth in APE to INR36.16b. The protection and ex-ULIP individual savings segments declined YoY by 4.6% and 19.9%, respectively. ULIPs grew 77% YoY.

* VNB declined 26% YoY to INR7.8b (19% miss), due to a sharp correction in margins to 21.5% (down 140bp QoQ) vs. our estimate of 26%. In FY24, APE stood at INR90.5b (4.7% YoY) and VNB at INR22.3b (-20% YoY). VNB margin for FY24 stood at 24.6% (32% for FY23).

* Considering the 4Q performance, we have cut our estimates for APE and VNB margin for FY25 and FY26. We expect IPRU to deliver an 18% CAGR in VNB over FY24-26. Going ahead, the company’s ability to sustain strong premium growth and VNB margins will be vital for re-rating of the stock. Retain BUY with a TP of INR700 (based on 1.7x Mar’26E EV).

Shift in product mix toward ULIPs

* IPRU’s gross premium grew 16.6% YoY to INR151.5b (11% beat) in 4QFY24, with renewal/first-year/single premium up 16.6%/11.9%/20.7% YoY.

* PAT declined 26% YoY to INR1.7b (40% miss) in 4Q. FY24 PAT rose 5.1% to INR8.5b.

* APE grew 9.6% YoY to INR 36.16b in 4QFY24. The protection and non-par segments declined YoY by 4.6% and 19.9%, respectively. ULIPs grew 77% YoY. For FY24, APE grew 4.7% YoY to INR90.5b. Retail protection as a percentage of total APE came in at 5.3% in FY24 vs. 3.8% in FY23.

* VNB declined 26% YoY to INR7.8b (19% miss), driven by a sharp correction in margins. 4Q VNB margins stood at 21.5% (down 140bp QoQ) vs. our estimate of 26%. The decline in VNB margins was owing to 1) the shift in the mix toward ULIPs and Par products in the savings segment, and 2) high cost assumptions.

* In FY24, absolute VNB stood at INR22.3b (down 19.5% YoY), with VNB margin at 24.6% (vs. 32% in FY23).

* On the distribution side, the share of banca/agency/corp. agents & broker channels increased QoQ to 29.9%/32.1%/13.5% in 4Q. Direct and group channels declined QoQ to 13.1%/11.4% in 4QFY24.

* The share of ICICI Bank stood at 12-15%. The share was high in 4Q as the ULIP and protection business registered stronger growth.

* Cost-WRP declined 110bp YoY to 21.7% in 4Q. In FY24, cost-WRP increased 260bp YoY to 24%.

* On premium basis, persistency improved across cohorts. 49th month and 61st month persistency stood at 67.8% and 63.6%, respectively, in 4Q.

* In 4Q, AUM grew 17.1% YoY to INR2.94t, while the solvency ratio moderated to 191.8%

Highlights from the management commentary

* In the ICICI Bank channel, ULIP and protection dominate and there is no change in strategy. The channel saw 45% growth in protection. Slow growth in 4Q was led by multi-insurer banks and non-bank partners, which focused mainly on the non-par segment.

* Of the 740bp decline in VNB margins for FY24, 410bp was due to change in operating assumption which was primarily on account of higher operating expenses. The company expects commissions to be stable, but operating leverage will be invested back into the business. The new product with a new commission structure does not have low VNB margin. Currently, the company is not changing the pricing of the product.

* Guidance: For FY25, business growth is expected to be ahead of the industry, and VNB growth is likely to be in line with business growth. Business growth will be primarily driven by proprietary channels of Agency and Direct, which have delivered better growth than the company level. If the product mix stays stable, VNB margin would be similar.

Valuation and view

IPRU delivered a weaker-than-expected performance in 4Q. Lower product-level margin remain a concern over the medium term. However, premium growth delivery would be key for valuation re-rating. While the business from the ICICI Bank channel has settled at 12-15% of the overall APE, strong growth in proprietary channels is expected to sustain, given the investments made over the past couple of years. Considering the 4Q performance, we have cut our estimates for APE/VNB margin for FY25 and FY26. We expect IPRU to deliver an 18% CAGR in VNB over FY24-26. Going ahead, strong premium growth and steady VNB margins would drive re-rating of the stock. Retain BUY with a TP of INR700 (based on 1.7x Mar’26E EV).

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