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BRIEF SUMMARY OF SHAREKHAN’S RESEARCH REPORT ON ICICI PRUDENTIAL SHARE
ICICI Prudential share reported a profit after tax of Rs. 312 crores versus Sharekhan’s estimate of Rs. 279 crores, down by 30% q-o-q and up by 2% y-o-y. Both investment income and new premium declined sequentially.
Revenue fell by 57% q-o-q in Q3FY22 owing to a decrease in the investment income which fell by 95% q-o-q.
New business premium (NBP) grew by 10% y-o-y on the back of growing importance of financial security which was largely contributed by protection and annuity segments.
We believe that Q4FY22 is likely to be a strong quarter owing to launch of new products and seasonal bias.
Value of new business (VNB) grew by 35% y-o-y to Rs.1,388 crore. VNB margins expanded to 27.1 % vs 26% in Q3FY21, aided by better product mix with higher share of annuity and non-par savings products.
The management guidance to double FY19 VNB by FY23E, through better product mix is likely to drive growth going ahead coupled with strong distribution capabilities.
KEY POSITIVES
The management was optimistic on the growth of the retail term protection segment thereby indicating a likely turnaround in this highly profitable category going ahead.
The company do not see near-term impact on the demand for the protection (retail) segment due to price hike.
Further, the price hike in the retail term segment was a without impacting any VNB margins.
The company hold a Rs.2.03 billion as COVID-19 reserves in Q3FY22 vs. Rs. 4 billion in Q2FY22.
KEY NEGATIVES
Total APE growth was moderate at ~16% y-o-y in Q3FY22 with lower contribution from the non-linked savings products.
MANAGEMENT COMMENTARY
The management was optimistic on the growth of retail-term protection segment thereby indicating a likely turnaround in this highly profitable category going ahead.
It intends to drive growth in Q4FY22 and FY23 by launching two new products.
The management opines that the provision buffers are sufficient for any incremental death claims due to COVID-19.
SHAREKHAN’S CALL VALUATION
We maintain a Buy rating on the stock with a revised PT of Rs. 754: ICICI Prudential share currently trades at 2.2x/2x its FY2023E/FY2024E EVPS, which we believe is reasonable, given the quality of the franchise and robust growth trajectory.
Cost and business growth of the industry is ensured by encouraging trends such as the ability to execute digital channels and measures for business continuity.
We believe the structural story for the insurance sector continues to be attractive with a long runway for growth and strong players are likely to be well placed in terms of pricing and growth.
ICICI Prudential share is showing long term positives such as a comfort in solvency, strength in balance sheet and structural growth potential.
We believe significant reduction in COVID-19 cases and increase in the vaccination drives in India are encouraging.
Sharekhan maintain Buy with a revised target price of ₹ 754.
KEY RISKS
Slower growth in protection products and APE growth may impact earnings. Any adverse regulatory policies/guidelines may affect its profitability.
OUTLOOK AND VALUATION SECTOR VIEW
Insurance industry has long-term positive growth prospects.
New business, based on retail weighted received premium of the industry, clocked a CAGR of 10.4% from FY2002 to FY2021.
In addition, India’s retail protection sum assured as a percentage of GDP is only 19%.
As against this, the sum-assured to GDP ratio of other Asian economies such as Thailand, South Korea, and Malaysia is 113%, 131%, and 142%, respectively, pointing towards a huge growth potential.
However, strong demand for protection and non-PAR segments continues.
Performance has continued to improve, which indicates that the insurance sector is steadily but surely reverting to normalcy.
India has a high protection gap; and credit protection product is still at an early stage and has the potential to grow multi-fold as penetration of retail loans improves in the country.
Sharekhan is quite bullish for the insurance sector due to the great potential this sector has in India.
In this backdrop, we believe strong players armed with the right mix of products, services, and distribution is likely to gain disproportionately from the opportunity.
The industry’s growth even during the pandemic shows a promising future for India’s life insurance sector, and the pandemic has highlighted the protection gap in the country.
COMPANY OUTLOOK
Business fundamentals remain strong despite challenges seen last year, regulatory changes, and market volatility.
Sharekhan believes superb improvement and resilience based on its growth trajectory.
ICICI Prudential share has built a large agency force, which will be key support for growth).
ICICI Prudential share stands out as a player with low-risk balance sheet and comfortable levels of capitalization.
While a ULIP-heavy topline was also prone to capital market-linked volatility, we believe growing proportion of the pure-protection business and savings business are long-term positives. ICICI Prudential share has a strong distribution network and bancassurance channel (courtesy its strong bancassurance partnerships, including with the owner), which is a strong growth lever for insurance growth in India.
Bancassurance already helps contribute over 40% to its APE income; and we expect it to be a long-term growth driver.
VALUATION
Sharekhan sees that ICICI Prudential share currently trades at 2.2x/2x its FY2023E/FY2024E EVPS which they feel is quite reasonable.
The ability to deploy digital channel and measures to ensure business continuity are encouraging trends for cost and business growth for the industry.
Sharekhan believe the structural story for the insurance sector continues to be attractive with a long runway for growth and strong players are likely to be well placed in terms of pricing and growth.
Sharekhan believe significant reduction in COVID-19 cases and increase in the vaccination drives in India are encouraging.
Sharekhan have fine-tuned their estimates and target multiple.
Disclaimer
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