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Strong results

ICICI Prudential Life Insurance reported strong 24.5% VNB margins for 1QFY26 (+170bps QoQ, +50bps YoY, +50bps JMFe). With 5% decline in total APE for 1QFY26, in line with JMFe, VNB declined 3% to INR 4.5bn, +2% JMFe. Margin expansion was led by an improvement in cost structures, with cost to premiums at 21.2%, down 280bps YoY, and strong growth in non-linked savings products at the expense of lower-margin ULIPs. Amongst other products, annuity APE declined 53% on a strong base of 1QFY25 while retail protection delivered another quarter of steady growth, at 24% YoY. We had noted the reducing average ticket sizes and high Sum Assured growth for IPRU to be margin accretive. Further, the controlled cost structure provides a structural tailwind for margins. Hence, we raise our margin estimates for FY26-FY27e by upto 100bps, resulting in VNB growth of 18%/13% for FY26/FY27e, ahead of APE growth of 11%/12% (unchanged). With this, we raise our Target Price to INR 760 (from INR 730 earlier), valuing the insurer at 1.8x FY27e EVPS (against 1.7x earlier) of INR 430. We reiterate BUY.

* Topline contracts YoY with a strong base and easing demand for ULIPs: ICICI Prudential Life Insurance reported 5.0%/9.3% YoY degrowth in total APE/individual APE in 1Q26, in-line with JMFe. Launch of GIFT Select in non-par supported growth in traditional nonlinked segment resulting in 20.8% YoY growth with a 50:50 par:non-par split in 1QFY26. Individual protection growth was strong 24.1% YoY which aided margin improvement. Annuity business halved YoY to INR 1.0 bn in 1Q26 (had launched GPP Flexi in 4Q24) group savings business continued growth momentum at 50% YoY.

* VNB decline restricted to 3.2% 1QFY26 as VNB margins improve 50bps YoY: In 1Q26, ICICI Prudential Life insurance reported VNB of INR 4.57bn, -3.2% YoY (+2.4% beat on JMFe) even as APE declined 5%YoY as VNB margins improved 50bps to 24.5% YoY. Improvement in margins can be attributed to decline in share of ULIP (at 47% vs 51% YoY) and pickup in non-linked savings business. In addition, reducing average ticket sizes and high Sum Assured growth for the insurer proved to be margin accretive in 1Q26. Controlled cost structure should aid margins in FY26 YoY in our view. Mgmt. highlighted that the focus remains on absolute VNB growth instead of margins going ahead.

* Valuation and view: At CMP, the stock trades at inexpensive valuations of 1.8x/1.6x FY26e/FY27e EV, implying 15/12x FY26/FY27e EVOP. The stock trades at a significant discount to HDFC Life and SBI Life and trades >1 SD below its mean valuations since listing. With growth improving to industry levels as the base effect eases in 2HFY26 and margins near 1Q levels, we see a sharp rerating in the stock. With this, we raise our Target Price to INR 760 (from INR 730 earlier), valuing the insurer at 1.8x FY27e EVPS (against 1.7x earlier) of INR 430. We reiterate BUY, maintaining IPRU as the preferred pick in the life insurance space.

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