ICICI Prudential Life Insurance Company Ltd. share price target

24 July 2019 1QFY20 PAT at INR2.8b came in marginally higher than our estimate of INR2.7b. Gross premium was up 14.7% YoY, mainly led by robust growth in single premiums. Group premiums grew 105% YoY to INR8.2b. grew 5.3% YoY to INR14.7b led by robust 88% YoY growth in Protection APE to INR2.1b, even as Savings APE declined 2.1% YoY to INR12.5b. Share of Protection in total APE improved further to 14.6% (8.

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 protection business remains robust. 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. 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. Over FY15-19, IPRU Life reported 20% CAGR in EVOP led by robust VNB growth.

ICICI Pru reported that promoter share capital requirements were met in Q4FY19 to 25% with successful sale of 3.71% by Prudential Life with a dividend of Rs. 1.55/ share with floor price of Rs. 300.

While we like IPRU as it benefits from increasing need of protection, and financialisation of savings, we are cautious due to high share of ULIP in portfolio and volatile equity market conditions. Given growth pangs, and high new business strain we maintain our Neutral. Benign equity markets, higher than expected growth and increased protection share remain a key risk to our call. Post the recent run up in price, we rate IPRU a NEUTRAL with a TP of Rs 400 (FY20 EV + 19.3x FY21E VNB). FY19 was flat on new business written but VNBM at 17.0% after assumption changes is a tad bit below expectations. We expect growth to return on a more comfortable base.

IPRU Life reported 4QFY19 PAT of INR2.6b (in-line). Gross premium growth picked up to 16.4% YoY in the quarter (+14.3% for FY19), mainly led by ~11%/118% growth in first-year/single premium. income grew 14% (+15% YoY in renewal premium), while PAT declined 30% YoY to INR11.4b. 24 April 2019 was flat YoY at INR78b for FY19 (+11% in 4QFY19). Savings APE declined 3.6% YoY to INR70.8b, while protection APE grew by a robust ~62% YoY to INR7.2b, mainly led by group protection. Share of protection in total new business APE improved further to 9.3% (5.7% for 12MFY18, 7.

We maintain BUY with a lowered TP of Rs 380 (FY20 EV + 18.2x FY21E VNB). 9MFY19 VNB margins declined to 17.0% (-50bps vs. 1HFY19 and +50bps vs. FY18) on account of 9MFY19 APE decline of 4.2% YoY to Rs 53.4bn. Management stated that margins declined despite costs being within budget due to unexpected APE decline (2.1% YoY) in 3QFY19. This resulted in 9MFY19 cost/TWRP ratio increasing to 15.4% (+140bps YoY). We had highlighted high margin and growth expectations in our 1Q and 2Q earnings releases.

22 January 2019 premium growth was restricted to 10% YoY (+15% for 9MFY19) due to a 15% YoY decline in first-year premium. Savings APE declined ~9% YoY to INR48.8b, while protection APE grew strongly by 100% YoY to INR4.6b, mainly led by group protection. Share of protection in total new business APE improved further to 8.6% (5.7% for 12MFY18, 7.9% in 1HFY18), while that of ULIPs stood at 80.9%. from 17.5% in 1HFY19, as management revised its cost assumption upward due to subdued growth in APE. 13 persistency declined 140bp YoY to 84.1%, while all other segments exhibited an improvement. Decline in 13 month persistency was largely seen in higher- ticket-size segment, but the company re-iterated that retail-linked surrender reduced by 30% YoY.

Value of new business (VNB) margin at 17% in 9MFY19 contracted by 50bps qoq (vs. our estimate of 17.7%). This was mainly driven by an upward revision in cost estimates for the full year based on actual data for nine months. Given lower growth in Annualized Premium Equivalent (APE) in 3Q19 at Rs17.3bn (-12% yoy), operating leverage has been unfavorable, weighing in on margins negatively. The cost ratio moved up by 140bps yoy in 9M19 to 15.4%, while the cost ratio, just considering savings lines of business, decreased by 30 bps yoy to 12% in the same period. Persistency (ex-single premium) for the 13th month declined by 130bps yoy to 84.1% given...

We maintain BUY with a TP of Rs 397 (Avg. FY20-21E EV + 19.8x Avg. FY20-21E VNB). 2QFY19 APE growth recovery to 6.1% YoY, and a largely stable protection share at 7.7% (-50bps QoQ) resulted in flat VNB margins of 17.5% in 1HFY19. Cost/TWRP ratio improved as a result of business growth to 15.1% in 2Q (1Q: 17.5% & FY18: 13.6%) but continues to remain high. Growth in business was largely driven by individual/group protection growing 24.3%/50.0% QoQ and ULIP which grew 49.3% QoQ. It was encouraging to see strong growth in individual protection.

ICICI Prudential Life Insurance Company (IPRU) reported gross written premium (GWP) of Rs76.8bn (+16.4% yoy, +39.2% qoq), a slight miss vs. our estimate of Rs78.1bn, with lower-than-expected new business premium (NBP) of Rs25.8bn (+13.1% yoy, +45.7% qoq) leading to a loss of market share to peers. Value of new business (VNB) margin remained stable at 17.5% on a sequential basis (lower than our est. of 17.8%) despite strong growth in protection segment (+108.2% yoy in 2QFY19) on an increasing share of ULIPs and lower share of participating products. Persistency showed strong resilience even in this environment with meaningful...