Q1FY24 Review: ICICI Prudential Life: Steady quarter exiting well, margins disappoint

19 Jul 2023 , 11:27 AM

ICICI Pru Life (IPRU) reported 1QFY24 results, with 4% YoY APE decline largely due to 35% YoY decline in APE from the ICICI Bank channel. Most of the savings segments witnessed YoY decline, explained by strong growth in March ’23 due to pre-buying ahead of tax related changes. Protection was buoyed by a sharp pick up in retail protection (62% YoY), while group saw 11% YoY decline. Banca channel declined 20%, as the ICICI Bank channel (-35% YoY) contribution dropped to 13.5% in Q1. VNB margin saw 100bps YoY decline to 30%, led by APE decline and higher employee costs- hence, VNB declined 7% YoY. Management remains confident of healthy VNB growth led by APE growth. Analysts of IIFL Capital Services believe IPRU’s product and distribution mix are becoming balanced. With the ramp down from ICICI Bank channel largely behind, IPRU could start delivering consistent double digit APE growth. Analysts of IIFL Capital Services forecast 14%/15% APE/VNB Cagr over FY23-25. Analysts of IIFL Capital Services maintain 12-mth TP of 700. The stock is trading attractively at 1.7x on FY25ii P/EV, below historical average. Analysts of IIFL Capital Services maintain BUY.

Base effect led to decline in APE but Q1 exit was strong: 

Premiums in Q1 were affected by pre-buying in March ’23 leading to a decline in nonlinked (-5% YoY) including annuity, while protection (4% YoY) was driven by retail protection (62% YoY) even as group saw 11% decline. Within distribution, growth was supported by the agency/direct/corporate agent channels (5%/28%/7% YoY), though banca channel declined 20%. ICICI Bank’s share fell to 13.5% in Q1, as it declined 35% YoY. Other banca partnerships were flat YoY, thus entailing 15.5% APE share.

Improving product mix may keep margins stable: 

VNB was down 7% YoY led by 100-bps YoY compression in VNB margins, as APE declined and employee costs went up sharply, while protection remained strong. Renewal premiums were tepid at 7% YoY. Cost/TWRP rose by 390bps YoY, with rise across savings and protection on higher investments and employee costs. 

Valuations attractive, BUY: 

Analysts of IIFL Capital Services forecast IPRU to deliver 15%/16% VNB/ EV Cagr over FY23-25. Stock is trading at 1.7x FY25 E/V vs their implied target multiple of 2.0x, based on 15x 2YF VNB. IPRU’s well-established franchise makes it an attractive story to own. Key risk: regulations.