Buy ICICI Prudential Life Insurance Ltd for the Target Rs 540 by Motilal Oswal Financial Services Ltd
Product mix shift drives 100bp YoY margin expansion
* ICICI Prudential Life Insurance (IPRU) reported APE of INR28b (in line), reflecting growth of 16% YoY. For 1HFY27, APE grew 15% YoY, supported by strong 40% YoY growth in the protection business.
* VNB margin for the quarter stood at 25.4% vs our estimate of 25.5% and 24.5% in 2QFY26. For 1HFY27, VNB grew 22% YoY and VNB margin expanded 150bp YoY to 26%, backed by the product mix shift.
* For 2QFY27, IPRU’s shareholder PAT grew 27% YoY to INR3.7b. EV at the end of 1HFY27 was at INR566.7b, growing 12% YoY.
* Cost-to-premium ratio (ex-GST) declined to 18.3% in 1HFY27, reflecting disciplined cost management and readiness to navigate possible regulatory recalibrations.
* We have maintained our estimates following the 2QFY27 performance, with operating RoEV projected at 12-13%. Key monitorables include regulatory implementations across distribution, IFRS, and risk-based solvency, as well as the impact of a rising interest rate environment. We reiterate our BUY rating with a revised TP of INR540 (based on 1.2x FY28E EV).
Protection contribution at over 20% of APE
* IPRU’s gross premium grew 16% YoY to INR142.5b (in line) in 2QFY27, driven by 6% YoY growth in renewal premium, while single premium grew 39% YoY.
* APE growth of 16% YoY in 2QFY27 was driven by 34% growth in protection and 52% growth in the lumpy group savings business, while ULIP grew 7% YoY and non-linked savings grew 11% YoY. Within non-linked savings, contribution of non-par improved to 40%, while par contributed 60%. The rising interest rate environment can likely be favorable for non-par and
* Within the protection segment, the retail business witnessed 36% YoY growth, with its contribution to APE rising to 8.3% in 2QFY27 from 7.0% in 2QFY26. Credit life growth was largely aligned with overall protection growth, supported by a diversified partner network as well as the parent bank.
* Savings business contribution declined to 80.0% in 2QFY27 from 82.7% in 2QFY26, largely owing to the impact of weak equity markets on ULIPs.
* The 100bp YoY expansion in VNB margin to 25.4% in 2QFY27 was a result of a favorable product mix, especially higher protection contribution.
* Commission expenses grew 8% YoY to INR13.8b, while operating expenses grew 45% YoY, resulting in a rise in EoM ratio to 18.6% from 17.5% in 2QFY26. However, cost/total premium, excluding GST, improved 30bp YoY to 18.3% in 1HFY27, while for savings, the ratio improved 90bp to 11.6%, reflecting disciplined cost management.
* On the distribution front, agency (grew 6% YoY)/direct channels (grew 9% YoY) together contributed ~46.5% of retail APE. IPRU is investing in enhancing its tech and analytics capabilities to improve agent productivity, while also adopting a micro-market approach.
* Bancassurance APE grew 4% YoY, contributing 27.5% of APE, with growth coming largely from non-ICICI banks, while ICICI bank has been stable.
* Partnership distribution APE increased 38% YoY, contributing 15% of APE, supported by deeper engagement with existing partners and new relationships.
* On a premium basis, persistency improved in 2QFY27, with 13th month persistency at 83.9% (81.4% in 2QFY26). The 61st month persistency improved to 62.3% (59.5% in 2QFY26) and the 37th month persistency declined to 72.9% in 2QFY27 from 74.4% in 2QFY26.
* AUM grew 2% YoY to INR3.3t, while solvency improved to 229.9% (213.2% in 2QFY26).
Highlights from the management commentary
* The proposed commission cuts are likely to have a substantial impact on credit life insurance. However, the regulator is expected to consider the product’s importance, given the large number of lives covered.
* Opex (ex-GST) has declined at an 8% CAGR over the past three years, positioning IPRU to navigate distribution-related regulatory recalibrations.
* The company has repriced non-par products in line with prevailing yields, with competitive IRRs potentially attracting younger customers. Sustained higher interest rates could increase the contribution of non-par and annuity products.
Valuation and view
* IPRU’s continued efforts toward the product mix shift and increasing retail protection contribution have resulted in continued YoY expansion in VNB margin. In the long term, the company’s profitability will be supported by sustainable growth momentum and increased traction of non-linked products.
* We have maintained our estimates following the 2QFY27 performance, with operating RoEV projected at 12-13%. Key monitorables include regulatory implementations across distribution, IFRS, and risk-based solvency, as well as the impact of the rising interest rate environment. We reiterate our BUY rating with a revised TP of INR540 (based on 1.2x FY28E EV)
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