The big strategic takeaway from 9MFY21 result of ICICI Prudential Life Insurance (IPRU) is the evolving silhouette of an ex-ICICI Bank product as well as distribution strategy. Key effects of this strategy include: (1) Growth in non-linked savings portfolio by healthy 35% in 9MFY21 YoY, (2) introduction of guaranteed savings as well as limited deferred annuity products, which is a shift from the erstwhile stance justified by the availability of suitable external hedging products (FRAs and 30-year G-Sec bonds) and (3) spurt in new distribution channels with 83 new partnerships including prominent banks. As such, despite ICICI Bank's contribution declining to 34% of the overall APE in 9MFY21, total APE/VNB is down ~27%/9.3% YoY in 9MFY21. However, such a strategic rejig can continue to have a near term volume as well as margin impact. Post 22% run up in price since 28th Oct'20, we downgrade the stock from Buy to ADD.
- Retail protection growth has moderated in-line with industry trend in Q3FY21. Total protection in Q3/9MFY21 declined 4%/8% YoY with moderation in retail protection, in-line with the industry trends. However, IPRU had been aggressive in taking price hikes post the increase in reinsurance rates which could also have had an effect on the retail protection volumes in Q2/Q3FY21. Total Protection APE has gradually flattened from Rs2.14bn in Q1FY21 to Rs2.32bn in Q2FY21 to Rs2.57bn in Q3FY21. Credit protect has evolved from a decline in Q1FY21 to moderate growth in Q3FY21, while group term has surprised positively in Q3FY21.
- ULIP revival steadily visible. ULIP business had steadily improved over the year with Q1/Q2/Q3 APE at Rs3.6/7.0/8.45bn, respectively. Recovery in ULIPs, as also seen with other insurers, remains a possible volume trigger in CY22.
- Persistency shows sequential improvement, 61st month bucket notably better. Compared to 11MFY21, retail persistency (excluding the single premium) remains lower in all but 61st month cohort. However, 13th / 61st month persistency was for higher for 8MFY21 cohort compared to 2MFY21. Total Covid claims (net of reinsurance) was Rs1.54bn. IPRU has an additional provision of Rs1bn towards Covid-19 which has not been utilised so far.
- Non-ULIP non-protection APE growth remains robust. This segment has increased by 43% in 9MFY21 underlying the efforts of the company to diversify the portfolio. The company has done tie ups with IDFC First Bank, IndusInd Bank, NSDL Payments Bank, RBL Bank and AU SFB in 9MFY21.
- Doubling VNB over FY19-FY23 to Rs26bn is a stiff target; downgrade from Buy to ADD. Based on 27% YoY decline in 9MFY21 APE, we have assumed 23% YoY decline in FY21. With an improving ULIP share, FY21 VNB/VNB margin is likely to be Rs13.4bn/24.5%. We ascribe 20x multiple to FY23E VNB of Rs20bn to arrive at a target price of Rs530 (implied FY22E P/EV of 2.2).
Shares of ICICI Prudential Life Insurance Company Ltd was last trading in BSE at Rs.499.35 as compared to the previous close of Rs. 502. The total number of shares traded during the day was 111774 in over 7029 trades.
The stock hit an intraday high of Rs. 506.55 and intraday low of 497.5. The net turnover during the day was Rs. 55973940. |
