Shares of ICICI Prudential Life Insurance Co. declined during opening trade on Wednesday after brokerages cut its target price citing near-term weakness in growth.
However, most brokerages retained a 'buy' on the stock after second-quarter earnings, citing better future growth prospects and attractive valuations.
The company's net profit rose 22% year-on-year to Rs 244 crore in the quarter ended September, according to an exchange filing. Revenue fell 23% sequentially.
The value of new business—the present value of the future profits associated with new business written during the year—fell 17% to Rs 544 crore in Q2. The VNB margin contracted to 28.8% from 31.78%. in Q2 last year.
Shares of the company fell 2.62% to Rs 519.70 apiece as of 9:25 a.m., compared with a 0.10% decline in the benchmark Nifty 50.
Of the 32 analysts tracking the company, 24 maintain a ‘buy', six suggest a ‘hold', and two recommend a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 18.2%.
Here's what brokerages have to say about ICICI Pru Life's Q2 performance:
HSBC Securities
Maintains ‘buy' with a target price of Rs 670 apiece (revised downwards from Rs 710 apiece), implying an upside of around 26%.
VNB margins moderated due to a change in business mix towards:
-- low margin linked and participating products and
-- an increase in the operating cost ratio.
Retail protection APE grew strongly at 86% year-on-year, group protection declined by 54% year-on-year.
Commission expenses increased after implementing the revised ‘Expense of Management' guideline, said management.
APE growth was impacted as business from its key distribution channel, ICICI Bank, shrank.
Insurer investing, expanding its distribution network, and deepening relationships with existing partners should drive growth.
A slowdown in the group protection business and lower demand for non-participating products could remain downside risks.
Moderate VNB margin estimate as the share of low-margin linked products increases and costs remain elevated.
Estimate average margins of 29.6% (from 31.5%) over FY2024–26.
While FY24 will remain challenging, growth should normalise thereafter.
Given the outlook for growth recovery in FY25 and the inexpensive relative valuation, maintain a 'buy'.
Downside risk: (1) sharp shift to lower margin products; (2) weaker-than-expected APE growth; and (3) any adverse changes to taxation benefits.
Morgan Stanley
Maintains ‘overweight' with a revised target price of Rs 665 apiece from Rs 685 earlier, implying an upside of 25%.
VNB missed the brokerage's estimates and consensus by about 8%.
This was due to a lower than expected VNB margin.
VNB margin was lower due to product mix shift and likely some product level margin compression.
Higher protection APE growth (positive for margin) was offset by higher growth in linked and participating APE (lower margin).
Cost ratios were higher as APE was flat year-on-year as it invested in new distribution channels.
High-ticket sales are similar to last year.
But now they are spread across ULIP and participating products, unlike last year when they were largely non-participating products.
The decline in annuity products (-7% YoY) was attributable to customers opting for fixed deposits instead of single-pay annuities.
A positive was strong retail protection growth.
The focus will be on the sustenance of APE growth in non-ICICI Bank channels.
Cut VNB forecasts are led by strong growth in ULIP, with a marginal cut in APE growth.
Stock performance could be muted in the near term, though the downside might be limited owing to stock weakness in the past month (down 11%).
'Overweight' given improving fundamentals and attractive valuation
Jefferies
Maintains ‘buy' with a revised target price of Rs 670 apiece from Rs 700 earlier, implying an upside of 26%.
Q2FY24 results were weaker due to compression in margins.
This reflects a weaker product mix with a rise in the share of Ulips.
Strong growth in retail protection (84%) was a key positive.
ICICI Pru Life is investing in distribution, and the base of ICICI Bank will even out.
Trim estimates and target prices a bit to factor in recent trends.
Believe that a combination of expansion of the distribution network and initiatives to improve agents' productivity should improve growth.
Feel that the contribution from ICICI Bank has also bottomed.
See limited downside from here; growth should start improving from H2FY23.
See modest growth in FY24 and mid-teen growth in premiums for FY25–26.
A pickup in growth would be a key re-rating catalyst.
Valuation is attractive; it trades at a 20–35% discount to leading life insurance companies.
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