ICICI Prudential Life Q4 Review: Shares Gain As Most Brokerages Say 'Buy'

Shares of ICICI Prudential Life Insurance Co. rose the most in a month as most analysts retained their 'buy' calls after the fourth quarter, citing focus on high-margin products such as protection and annuity as well as investments in non-ICICI Bank Ltd. distribution channels, among others.

Net profit of the life insurer stood at Rs 187 crore in the quarter ended March against Rs 62.5 crore a year ago, according to an exchange filing. That compares with the Rs 520-crore consensus estimate of analysts tracked by Bloomberg.

Its net premium, however, fell 4% to Rs 11,359 crore. That’s on account of a fall across categories—single, renewal and first-year premiums.

According to Motilal Oswal, net premium income declined in 4Q FY22 because of "a drop in new business premium and renewal premium." The growth in after-tax profit, it said in a report, was "driven by lower claims and reserving."

ICICI Prudential Life Q4 Highlights (YoY)

• Revenue fell 29% to Rs 13,846 crore.

• Operating profit stood at Rs 222 crore, up 98%.

• Ebitda margin stood at 1.6% against 0.6%.

• Persistency ratios by premium for 13th, 25th, 37th, 49th and 61st month rose year-on-year to 84.4%, 75.5%, 65.9%, 62.6% and 54.3%, respectively.

• Solvency ratio stood at 204.5% against 202.2% as of December and 216.8% a year ago. The minimum requirement is 150%.

The board has also approved a final dividend of Rs 0.55 apiece for FY22.

NS Kannan, managing director and chief executive officer at ICICI Prudential Life, said despite the disruptions caused by the third wave of Covid-19, which impacted productivity in January and February, the company was able to demonstrate resilience in its operations. "In March, we posted the best ever monthly sales by the company in any year since inception," he said in a statement.

The company, he said, launched two new products for unit-linked customers seeking a regular income, and the return on premium variant of retail protection product. "The contribution of these innovative offerings was more than 25% of the APE in FY22."

During the year, the insurer forged 100 partnerships and added 25,000 agents in its distribution network, Kannan said.

This, according to him, was the first year of profitability for the company's wholly owned subsidiary, ICICI Prudential Pension Fund Management Co.

• New business premium received rose 15.4% to Rs 15,036 crore.

• After-tax profit fell 21% to Rs 759 crore.

• Earnings per share fell to Rs 5.28 from Rs 6.66.

• Annuity and protection new business premiums grew 29% and 35% year-on-year.

• Product mix contribution stood at 48% for linked savings, traditional savings at 31%, protection at 17% and the balance of 4% accounted for by group savings products.

• Persistency ratios by premium for all months—13th, 25th, 37th, 49th and 61st—improved.

Shares of ICICI Prudential Life rose 4.44%, the most in a month, to Rs 565 apiece as of 10:30 a.m. on Monday. The stock's trading volume is nearly seven times the 30-day average at this time of the day.

The relative strength index on the stock is at 76, suggesting it may be overbought.

Of the 36 analysts tracking the company, 31 maintain a 'buy', three suggest a 'hold' and two recommend a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 23.1%.

Here’s what brokerages have to say about ICICI Prudential Life’s Q4 FY22 results...

• Maintains ‘buy’ with a target price of Rs 675 apiece, implying a potential upside of 25%.

• The insurer maintained a steady traction in VNB growth led by healthy product mix and APE growth.

• Share of banca (excluding ICICI Bank) has increased to 14% in FY22 from 4% in FY19, supporting growth and diversification in distribution mix.

• Management is optimistic of a turnaround in sales at ICICI Bank as the momentum in retail protection is improving.

• With focus on annuity and protection, this should help the bank sales to remain strong.

• Increase in agent recruitment and strong pace of adding new partnerships will continue to support premium growth.

• VNB grew due to a higher share of high-margin products such as protection and annuity.

• Expects ICICI Pru to achieve its objective of doubling the FY19 VNB by FY23.

• Beyond FY23, the long-term objective is to grow higher than the industry VNB growth rate, said the management.

• Maintains ‘buy’ with a target price of Rs 750 apiece, implying an upside of 39%.

• The company’s growth outlook is positive given the strong contribution from new product launches over the last two years and turnaround in the retail protection segment.

• VNB growth in FY22 was mainly led by the non-linked savings segment.

• VNB margin for 4Q FY22 expanded sharply led by strong traction in non-linked savings and protection categories.

• The management has maintained its VNB guidance of Rs 2,650 crore for FY23, supported by multiple growth and margin levers such as new product launches will aid APE growth; turnaround in protection and higher contribution from other high-margin products can aid margin expansion; and overall higher growth will aid efficiency gains.

• Given the volatile capital markets, balance advantage and non-par products are expected do well.

• The company is looking to invest in agency and direct channels while also scaling up the non-ICICI Bank banca channels.

• So far, the traction in non-ICICI Bank channels has been healthy, as reflected in its increasing share.

• The product mix has turned out better than expected, leading to upward margin revision.

• Negative mortality variance has contributed towards cut in embedded value per share.

• The management has maintained the "retail term protection turning the corner" view post 4Q FY22 as well.

• The company expects retail term protection to start contributing to

  growth from FY23 onwards after having bottomed out in H2 FY22.

• Given the product mix change over the past three years, the company has done well in terms of diversifying its revenue as well as VNB pool.

• Provisions held for future Covid claims are Rs 24 crore.

• Maintains ‘buy’ with a target price of Rs 660 apiece, implying an upside of 22%.

• The valuation looks attractive, with a return of top line growth remaining the key for a rerating.

• Results marginally better than their estimates due to strong APE growth in March 2022 and better product mix.

• The company reaffirmed its guidance of doubling FY19 VNB by FY23.

• In FY23, the key to double FY19 VNB is APE growth.

• The management is confident about this due to the company’s wide range of product offerings and distribution channels that are starting to deliver, including the ICICI Bank channel that has likely bottomed out.

• Management said that given the changes in the product mix and investment in distribution, the cost ratio was slightly elevated but it still remains one of the best in the industry.

• Operating parameters, including persistency, product mix, and distribution mix were broadly stable.

• The high share of non-par in non-linked products boosted margins.

• A likely recovery in retail protection should improve margins, but return of premium products should dilute it a bit.

• Any changes in par/ non-par mix toward par should also dilute margins.

• Against this backdrop, the brokerage expects FY23 margins to be broadly in line with FY22.