ICICI Prudential Life Insurance
15 July 2019
Update | Sector: Insurance
TP: INR475 (+24%)
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Transforming into more than just a play on capital markets
The trajectory in new business premium at ICICI Prudential Life (IPRU Life) seems to be
stabilizing as the company reported ~5.3% YoY APE growth in 1QFY20 as against flattish
growth in FY19. Higher new business strain driven by rising mix of the protection
business and associated advertisement & marketing cost impacted earnings growth in
FY19. We estimate earnings growth to turn positive at 9% CAGR over FY19-21 led by (a)
Protection business continuing to grow at a robust pace, thus driving margins, (b)
improved operating leverage aided by increasing use of technology, and, (c) recovery in
the core savings business. We estimate IPRU to report ~22% CAGR in VNB over FY19-21E
led by 17% CAGR in new business APE while operating RoEV is expected to sustain at
~19%. Maintain BUY with PT of INR475/share (2.3x Mar-21E EV).
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
During FY19, ULIP APE declined 2.7% YoY v/s an average 18% growth over FY17-
19. Protection business though has grown at ~62% YoY and its share in the total
APE improved to 9.3%. Though FY20 has started on a softer note, we believe that
introduction of new customer friendly ULIP product (Exhibit 33) and stable
market performance should drive ULIP sales over FY19-21E while the growth in
Financials & Valuations (INR b)
FY19 FY20E FY21E
protection business remains robust.
305.8 349.8 402.8
Surplus / Deficit
12.3 14.8 14.6
Sh. holder's PAT
11.4 12.2 13.4
New bus.gr-unwtd (%) 12.5 15.0 17.0
New bus gr-APE (%)
-3.0 15.4 19.2
NBP margin (%)
17.0 18.5 19.6
16.4 16.5 16.6
15.1 16.4 16.5
13.3 15.6 19.7
EV per share
151 175 205
48.4 45.3 41.1
Shareholding pattern (%)
Mar-19 Dec-18 Mar-18
FII Includes depository receipts
551.9 / 8
428 / 278
APE growth showing recovery signs after volatile FY19
VNB margins to expand on back of rising protection mix & cost-control
Protection new business premium mix has improved from 4.6% to 20.6% over
FY16-19. Retail Protection and Credit Life forms ~61%/~22% of the total
Protection APE, enabling IPRU Life to report robust margins in the Protection
business with VNB from protection business constituting ~59% of total VNB. We
conservatively estimate VNB margins to increase ~260bp to 19.6% by FY21E.
Improving persistency and benign rate environment to boost EV growth
In FY19, IPRU displayed improved persistency across cohorts (barring 25
despite markets being volatile. With improving customer awareness and product
proposition, we expect persistency ratios to improve further, thereby aiding
margin expansion and EV growth. As per the sensitivity analysis, IPRU life would
witness ~2%/4% improvement in EV/VNB for every 100bp decline in interest rates
whereas EV/VNB would improve by ~1%/9% for every 100bp decline in lapse rate.
Higher strain to remain a drag; estimate 9% earnings CAGR over FY19-21E
Over FY15-19, IPRU Life reported 20% CAGR in EVOP led by robust VNB growth.
However, higher new business strain driven by rising mix of protection and sales
related expenses impacted earnings growth. Improvement in operating cost (11%
Stock Performance (1-year)
ICICI Pru Life
Sensex - Rebased
decline in staff count) and increased operating leverage will enable 9% earnings
CAGR over FY19-21E.
Valuation and view
We estimate ~22% CAGR in VNB over FY19-21E led by 17% CAGR in new business
APE while operating RoEV is expected to sustain at ~19%. We thus estimate VNB
margins to recover to ~19.6% by FY21E while operating metrics improve further.
Despite outperformance over the recent months the stock is still trading at
attractive levels of 1.9x FY21E P/EV (LTA of 2.5x) and thus offers 24% upside to
our fair value of INR475/share (2.3x Mar-21E EV).
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.