ICICI Prudential Life Q1 Review: Analysts Say 'Buy' On Better VNB Margin, 'Attractive' Valuation

Most analysts reiterated ‘buy’ on ICICI Prudential Life Insurance Co. after the first quarter citing performance of non-bancassurance channels and growth in value of new business, led by a greater share of high-margin products such as non-participating savings, annuity, and protection.

The private life insurer reported a profit of Rs 156.6 crore in the quarter ended June against a Rs 185.3-crore loss a year ago.

A drop in investment income on the company’s unit-linked portfolio, coupled with a slow 4% growth net premiums impacted mainly due to a fall in renewal premiums, dragged down the top line.

Value of new business—present value of the future profits associated with new business written during the period—grew 32%. Its VNB margin expanded to 31% in the first quarter against 29.4% a year ago.

Shares of ICICI Prudential Life rose over 2%, the most in a week, in early trade on Monday.

Of the 34 analysts tracking the company, 29 maintain ‘buy’, three suggest a ‘hold’ and two recommend a ‘sell’, according to Bloomberg data. The average of the 12-month target price implies an upside of 27.4%.

Here’s what brokerages have to say about ICICI Prudential Life’s Q1 FY23 results.

• Maintains ‘buy’ with a target price of Rs 630 apiece, implying an upside of 22%.

• The company remains on track to achieve its stated objective of doubling FY19 VNB by FY23.

• It posted 24.7% year-on-year growth in new business annualised premium equivalent, led by an all-round growth of 25%/22% in savings/protection. Within savings, annuity/non-linked/unit-linked insurance plans grew 69%/41%/15% year-on-year.

• Value of new business growth was led by a higher share of higher margin products like non-participating savings, annuity, and protection.

• The share of protection in the overall mix improved by 420 basis points quarter-on-quarter to 21.7% in Q1FY23. Within protection, demand for retail protection remains weak, while credit life saw a strong traction, led by buoyed disbursements.

• The management said the industry has addressed only 12-13% of the addressable market for protection, and hence the opportunity size remains huge.

• ULIPs grew 15% in Q1FY23, lower than the overall growth of 25% due to a volatile capital market.

• Volatility in the capital market and muted demand for retail protection drove the weakest sales performance from the ICICI Bank channel.

• The share of banca (excluding ICICI Bank) has risen to 15% vs 4% in FY19, thus aiding growth and diversification in the distribution mix.

• The increase in agent recruitment and the strong pace of adding new partnerships will continue to support premium growth.

• The idea of approaching customers with a wider product bouquet, through all channels, will further boost premium growth.

• Maintains ‘buy’ with a target price of Rs 670 apiece, implying an upside of 30%.

• Q1FY23 results were a mixed bag.

• VNB margin stood at 31%, surprising positively.

• However, APE growth was muted on a favourable base, raising concerns about FY23 APE growth, which is critical for the company to achieve its target of doubling FY19 VNB in FY23.

• VNB margin came in above estimates, as strong growth and better pricing in group protection (credit life and group term insurance), along with annuity growth, drove margin improvement.

• A material slowdown in June 2022 monthly new business resulted in a softening of APE growth.

• Profit after tax was materially lower than estimates, and also much lower than pre-Covid Q1 PAT trends.

• The strong volume and pricing growth in group credit life and group term insurance made up for the struggling retail protection.

• Persistency saw good improvement in the 61st month (likely owing to the change in product mix away from ULIP over the years).

• Management is confident of a growth pick-up in the coming months with all the distribution channels, ex-ICICI Bank, firing up and the demand of retail protection picking up in H2FY23.

• Management expects this growth, coupled with higher-than-FY22 VNB margins, to drive it to its 2x FY19 VNB goal.

• The valuation looks attractive, with a return of top line growth remaining the key to a rerating.

• Maintains ‘buy’ with a target price of Rs 756 apiece, implying an upside of 47%.

• ICICI Pru reported around 25% year-on-year growth in APE, led by strong traction in protection and non-linked savings, while growth in ULIP sales moderated on account of volatile capital markets.

• Overall growth outlook is positive on the back of sustained traction in non-linked products, especially guaranteed products and revival in retail protection.

• However, sustained increases in interest rates pose a competitive threat to guaranteed products.

• The company reported all-time high VNB margin of 31%, mainly led by an improved product mix—higher share of protection and non-linked savings products.

• The management reiterated that it is on track to achieve Rs 2,650 crore in VNB by FY23-end.

• Besides APE growth, certain margin kickers such as improving protection mix and improving persistency could also help.

• Channel performance, except direct, was strong. Non-ICICI banca channel witnessed strong growth on the back of new product launches and market share gains.

• Direct channel growth was muted as it is predominantly ULIP-centric

  and thus saw its growth moderate.

• The company’s overall performance in Q1FY23 was above expectations.

• Will watch for revival in retail protection and traction in guaranteed products in light of the rising interest rate environment.

• Persistency ratios have improved across cohorts.

• Mortality experience has been within expectations.

• Return of premium contributed 18% to retail protection sales and has the potential to grow faster due to its mass market appeal.

• The company is confident about growing the group term business along with other lines of protection business.

• Retains ‘add’ with a target price of Rs 700 apiece, implying an upside of 35% from the pre-result closing price on July 15.

• The company reported slower-than-industry APE growth (+1% 3-year CAGR, in line with estimates).

• However, VNB margins, at 31%, came in 200 basis points ahead of estimates.

• This was largely because of higher share of annuities and group protection in the mix.

• Likes ICICI Pru’s reengineered business model, which is focused on a more diversified product and channel mix, industry-leading share in sum assured (Q1FY23: 15.8%), and rising share of traditional products.

• Expect re-jigging of protection products to customer demand alongside strong momentum from non-ICICI Bank channel to aid future growth.

• Management highlighted that the demand for term protection has been soft after normalisation in Covid cases, and it expects it to pick up from H2FY23 onwards.

• In this environment, return of premium policies remains a focus to penetrate into the mass and mass-affluent customer segments.

• Given a strong focus on large corporate term policies, corporates are opting for enhanced sum assured and extending coverage to larger base.

• The company is aggressively expanding its agency network to ramp up new business, while also targeting productivity gains.