Q2FY24 Review: ICICI Prudential Life: Margins disappoint on mix change, higher EoM

18 Oct 2023 , 12:24 PM

ICICI Pru Life (IPRU) reported Q2FY24 results, with 3% YoY APE growth largely due to 15% YoY decline in APE from the ICICI Bank channel. While ULIPs witnessed healthy growth at 13% YoY, the Non-linked segment saw 7% YoY decline. Protection was buoyed by a sharp pickup in Retail Protection (84% YoY), while Group saw 16% YoY decline. Banca channel declined 3%, as the ICICI Bank channel contribution stabilised at 13.7% in Q2. VNB margin saw 310bps YoY decline to 28.0%, led by change in product mix away from the high-margin non-par and sharp increase in costs led by higher commissions post relaxation of EoM guidelines. Hence, VNB declined 7% YoY. Analysts of IIFL Capital Services see risk to VNB growth in FY24, even as management was non-committal on the VNB growth outlook. Their believe IPRU’s product and distribution mix are becoming balanced. With the ramp-down from ICICI Bank channel largely behind, IPRU should deliver consistent double-digit APE growth in medium term, though growth in that channel remains elusive. Analysts of IIFL Capital Services forecast 11%/10% APE/VNB Cagr over FY23-26. Their cut 12-month TP to Rs660 (from 710) on lower VNB margin assumptions. The stock is trading attractively at 1.6x on FY25 P/EV, below the historical average. Analysts of IIFL Capital Services maintain BUY.

APE growth improves:

Premiums in Q2 were affected by decline in Non-linked (-7% YoY) including Annuity. Protection (3% YoY) was driven by Retail Protection (84% YoY), even as Group saw 16% decline. Within distribution, growth was supported by the agency/direct/corporate agent/ex-ICICI Bank channels (4%/19%/25%/13% YoY); though ICICI Bank declined 15% YoY, but stabilised share at 13.7% of APE. 

Unfavourable product mix; higher commissions dent margins: 

VNB was down 7% YoY, led by 310-bps YoY compression in VNB margins, as APE mix increased towards ULIPs and commission costs rose sharply (87% YoY). Renewal premiums were tepid at 4% YoY. Cost/TWRP rose by 500bps YoY, on higher commission costs and investments. 

Valuations attractive; BUY: 

Analysts of IIFL Capital Services forecast IPRU to deliver 10%/15% VNB/ EV Cagr over FY23-26. The stock is trading at 1.6x 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.