ICICI Prudential Life Insurance Ltd For Target Rs. 750 By Elara Capital Ltd
Base reset: execution key
Though ICICI Prudential Life Insurance (IPRU IN) continues to report better annualized premium equivalent (APE) growth than the industry and private firms for another quarter, absolute VNB growth was lower than APE growth on account of decline in value of new business (VNB) margin. The margin contraction is attributable to higher share of lumpy and low margin group fund business, which increased 4.5x YoY. Adjusting for this, VNB margin was similar QoQ (Q2 VNB margin 23.4%). Distribution remains well balanced with agency, bancassurance, direct and group channels reporting growth. APE growth was led by ULIP, annuity, group savings and retail protection segments while non-linked savings continues to face growth challenges. Lower disbursements in micro finance institutions (MFI) also led to a decline in the group protection segment.
ULIP share to remain elevated in Q4 while protection growth with base impact: Despite an already high ULIP base, customer demand in the segment remains resolute despite recent market volatility. We believe protection segment growth could see base impact with group protection ~INR 2.8bn in Q4 while retail protection could continue to clock in >40% APE growth
Product mix calibration could lead to ~12-13% APE growth FY25-26E: IPRU benefited in FY25 on low APE base, delivering industry-leading growth largely led by ULIP. As base resets, we expect growth to be more calibrated as delivering ULIP growth on an already high base coupled with potentially lower yield curves could drag non-par savings growth. We therefore factor in APE growth of ~12-13% FY25-26E
VNB margin to be range-bound with management focus on absolute VNB growth: We expect VNB margin to ~24% during FY25-26E with onus on absolute VNB growth falling on APE growth.
Recommend Accumulate with a TP of INR 750: We revise our target P/EV to 1.8x from 2.2x after factoring in a 50bp increase in risk premium to account for potential regulatory scrutiny of the bancassurance channel. Our residual income model based on 12.5% required return, 5% terminal growth and FY27E RoEV of ~14.1% implies 1.8x December 2026E P/EV on embedded value per share of INR 418. This translates into a TP of INR 750 from INR 900. We recommend Accumulate from Buy. Key risks are: 1) adverse regulatory changes, and 2) a slowdown in ULIP growth, and inability to offset it with non-par growth.
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SEBI Registration number is INH000000933
