ICICI Prudential Life - Strong performance in tough times - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

ICICI Prudential Life (IPRU) trumped expectations with APE growth 7% ahead of estimates and a significant beat on VNB margins (+637bps), driven by a higher share of protection and annuity. We like IPRU's reengineered business model, which is focused on a more diversified product and channel mix, industry-leading share of protection (Q1FY22: 15%), and rising share of traditional products. With a higher share of protection and annuity in the mix, we raise our VNB margins by 160bps for FY22E/23E to 26.3/26.5%. We expect VNB to exhibit a 26% CAGR over FY21-23E. We retain our ADD rating with an increased DCF-derived target price of INR 685 (Mar-22 EV + 26.1x Mar-23E VNB). The stock is currently trading at FY22/23E P/EV of 2.8/2.4x and P/VNB of 27.3/21.6x.

Q1FY22 highlights: The total APE grew 48% YoY (two-year CAGR at 9%) to INR 12.2bn, registering a 7% beat. Group protection exhibited strong growth (+108% YoY) on the back of a pick-up in disbursements and new group-term arrangements while retail protection de-grew 17% YoY as a result of limited medicals in a restrictive environment. In recent quarters, banca partners other than ICICIBC have delivered strong growth momentum. VNBM for Q1FY22 was significantly higher than our estimates at 29.4% (+580bps sequentially), largely on account of shifting business mix towards protection (+850bps) and improving share of annuity.

COVID provisioning: With 1Q witnessing a significant surge in claims, net claims shot up to INR 5bn (i.e., 2.5x FY21). IPRU has additionally provided INR 6.7bn towards (i) all notified as well as in-process claims and (ii) IBNR claims with closing reserves at INR 5bn. Net claims were significantly higher on account of (1) change in customer segment (lower age group-higher sum assured) and (2) change in product mix (towards protection). Persistency for 2MFY22 improved across cohorts in the range of 30-360bps on a YoY basis except in the 41st month. Loss before tax clocked in at INR 1.8bn on the back of higher provisioning and elevated expense ratios.

Shares of ICICI Prudential Life Insurance Company Ltd was last trading in BSE at Rs. 603 as compared to the previous close of Rs. 626.1. The total number of shares traded during the day was 69969 in over 2678 trades.

The stock hit an intraday high of Rs. 624.05 and intraday low of 602. The net turnover during the day was Rs. 42716517.

Source : Equity Bulls

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