ICICI Prudential

Update on the Indian Equity Market:

On Tuesday, Indian equity markets ended in the red for the fifth day in a volatile session. The benchmark index NIFTY50 settled at 16,959 (-1.3%), dragged by HDFC (-6.3%), HDFCLIFE (-6.3%), and SBILIFE (-4.5%). APOLLOHOSP (+5.3%), COALINDIA (+3.3%), and RELIANCE (+3.2%) were the top gainers. Among the sectoral indices, OIL & GAS (+0.8%) was the only one to end in green. IT (-3.0%), FMCG (-2.8%), and REALTY (-2.5%) were the top sectoral losers.

Excerpts from an interview of Mr. NS Kannan, MD & CEO of ICICI Prudential Life Insurance Company (IPRULIFE) with CNBC-TV 18 on 19^th April 2022:

• IPRULIFE announced 4QFY22 and FY22 earnings. APE (Annual Premium Equivalent) grew 20% YoY in FY22, driven by multi-product, multi-channel architecture. VNB (Value of New Business) grew 33% YoY in FY22. In addition to topline growth, the VNB margin grew from 25.1% in FY21 to 28% in FY22.
• The margin growth can be attributed to the increase in the sale of protection products and a diversified product profile.
• The Company has an objective of doubling the absolute VNB of FY19 by FY23. IPRULIFE requires 22% growth in FY23 to achieve the target. The growth in VNB will be led by topline growth and margin expansion levers.
• As the company recovers from the pandemic, it hopes for a much clearer route for growth.
• Fulfillment was impacted due to the pandemic, the company could not get the medical examination of customers done. Given the awareness of insurance, the demand remains high.
• VNB has grown from Rs 12,860mn in FY18 to Rs 21,630mn in FY22. The driver for this has been the partnerships established. ICICI bank accounts for ~25% of the topline. The Company has tied up with several banks (7 in FY22), which contribute ~15% of the topline. Direct business is ~13% of the topline. Agency channel contributes ~25% of the business. The well-diversified channel mix has resulted in topline growth despite the challenges posed by the pandemic.
• The growth driver for VNB margin is product mix. ULIP’s contribution has reduced from ~80% to ~48% of total revenue in FY22. The protection business has also scaled up significantly.
• The savings business is expected to grow at the nominal GDP growth rate in India. The protection business which is an underpenetrated one is a significant opportunity.
• The life insurance sector has benefitted from liberalization. Insurance penetration can be measured as a percentage of the sum assured. Based on that metric, IPRULIFE has a 13.5% market share.

Asset Multiplier comments:

• The insurance sector in India is a multi-decadal opportunity aided by rising disposable income, young population, and awareness. The pandemic has increased the awareness of insurance and digitization initiatives by companies have helped meet the demand.
• IPRULIFE is likely to see a growth in the Banca channel sales, aided by new partnerships forged in the previous years and a turnaround in sales from its parent, ICICI Bank. With a focus on scaling up the agency and direct channels through recruitment and training of new agents, we expect the topline growth will help it achieve its target of 2x VNB of FY19 by FY23E.

Consensus Estimate: (Source: Market screener website)

• The closing price of ICIC was ₹ 512/- on 19-April-2022. It traded at 55x/ 48x the consensus EPS estimate of ₹ 9.3/ 10.6/- for FY23E/FY24E respectively.
• The consensus average target price is ₹ 678/- which implies a PE multiple of 64x on FY24E EPS of ₹ 10.6/-.
• In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”