ICICI Prudential Life Q3 Review: Shares Tumble Even As Analysts Suggest ‘Buy’
Here’s what brokerages have to say about ICICI Prudential Life’s third-quarter results:
Most analysts reiterated ‘buy’ on ICICI Prudential Life Insurance Co. citing a fall in Covid claims with declining mortality, and better pricing and growth prospects for retail protection. Yet, the stock fell the most in at least a year.
The private life insurer's revenue slumped 57% sequentially in the quarter ended December, while profit fell 30%. A drop in investment income and net premium dragged down the top line.
Shares of the insurer declined more than 7% in early trade on Wednesday. Of the 35 analysts tracking the company, 29 maintain a ‘buy’, four recommend a ‘hold’ and two suggest a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 30.4%.
The stock’s trading volume was four times the 30-day average volume at this time of the day. The shares fell below the 50-day and 200-day simple moving average, indicating a potential downward price momentum.
Here’s what brokerages have to say about ICICI Prudential Life’s third-quarter results:
Jefferies
Maintains ‘buy’ with a target price of Rs 830 apiece, implying an upside of 37% from the pre-result closing.
ICICI Pru Life has raised its reinsurance threshold for retail term from around Rs 20 lakh to Rs 90-100 lakh. While this can entail greater risk absorption and higher capital needs in the future, this approach can allow the company to stay more competitive.
It raised the term-life price by up to 10% during the third quarter, lower than initially expected.
The impact of Covid-19 claims is waning with the third quarter of FY22 witnessing net Covid-19 claims of just Rs 120 crore.
ICICI Prudential is carrying around Rs 203 crore in Covid-19 reserves, but given the lower mortality rates of the Omicron strain, aided by higher levels of vaccination, and much lower third quarter net claims of Rs 50 crore from fresh infections, there could be further release.
This may also lead to higher margin in term-life products, particularly in the re-priced group term insurance products.
Within protection category, the company continues to selectively pursue opportunities in group term insurance which, owing to limited competition, better pricing, and likely reserve release can aid margin and growth.
Credit protect growth has continued apace.
New bancassurance tie-ups growth at more than 40%, though ICICI Bank stays muted.
Nirmal Bang
Maintains ‘buy’ with a target price of Rs 817 apiece, implying an upside of 34%.
The company sounded increasingly positive on the retail term protection segment, indicating a turnaround in the highly
profitable category in the near term.
Despite taking a 0-10% price hike in the retail protection
segment, the company does not anticipate any near term demand impact.
The price hikes in the retail term segment have been taken without sacrificing any value of new business margins.
Over the longer term, growth prospects for retail protection are bright given the underpenetration.
The management mentioned that the two new product launches in
third quarter of FY22 will push the pedal on growth in fourth quarter of FY22, and FY23.
Overall, group protection continued to do well.
Motilal Oswal
Maintains ‘buy’ with a target price of Rs 760 apiece, implying an upside of 25%.
Growth was supported by healthy trends in protection and unit-linked insurance policies or ULIP businesses.
Protection growth was supported by higher growth in the credit life business, led by improved credit demand and an increase in product pricing.
Management said there is a structural long-term play in retail protection and would therefore look to grow this business over the long term.
The company was able to restrict the reinsurance price hike to 0–10% across segments without compromising on margins.
The company does not expect the reinsurance rate hikes to impact margins.
Emkay
Maintains ‘hold’ with a target price of Rs 725 apiece, implying an upside of 25%.
ICICI Pru Life maintains a sharp focus on the protection business.
To mitigate the reinsurance price hike and utilise its capital efficiently, the company has increased its retention limit in retail protection.
Management has assured that increased retention does not reflect any changes to their risk management philosophy.
Management said that given the changes in the product mix and investment in distribution, the cost ratio will remain slightly elevated, but it still remains one of the best in the industry.
Covid-19 claims in Q3 were lower than anticipated, and that included delayed claims estimations from previous quarters.
Management sounded confident of delivering 2x FY19 value of new business by FY23.
With relatively limited room for margin expansion, the heavy-lifting part of VNB growth in FY23 has to be done by annualised premium equivalent growth, which management is confident about due to wider product offerings and distribution channels starting to fire.
Considering its volatile track record of growth, slightly poorer embedded value returns and a relatively tough road ahead, the brokerage believes that the implied multiples for ICICI Pru need to be at a discount to peers.
ICICI Securities
Upgrades to ‘buy’ from ‘add’ but cuts target price to Rs 720 from Rs 730 apiece, still implying an upside of 19%.
From lowering ULIPs to increasing non-par mix, introduction of long-term product in traditional category, launch of return of premium in protection segment and growing partner ecosystem, ICICI Pru now has many more levers of growth, compared to the past.
Introduction of return of premium in protection segment will give more volume growth in retail protection in mass and mass-affluent segment.
Within annuity, ICICI Pru Life is targeting 52-58 years as new customer segment from second quarter of FY22.
Competitive 0-10% hike in pure term with higher retention ratio is a strategy to maximise returns basis.
Non-bancasssurance channels have outperformed.
With price hikes in pure term and introduction of RoP category of protection, bancasssurance growth is expected to pick up.
The declining trend in Covid mortality cases and increasing vaccinations limit concerns on provision overrun.