Target: ₹ 660
CMP: ₹ 542.20
ICICI Prudential Life Insurance Company’s (IPRU) FY22 results came in marginally better than our estimates, thanks to strong Annual Premium Equivalent (APE) growth in March 2022 and a better product mix. After ending FY22 on a high note, the company reaffirmed its guidance of doubling FY19 value of new business (VNB) by FY23.
VNB margin expansion has done the heavy-lifting in VNB growth in the last three years. Since the scope for margin expansion is relatively limited, the key to achieving about 22 per cent VNB growth in FY23 to double FY19 VNB is APE growth.
To reflect FY22 development and management commentary, we have tweaked our estimates, leading to a minor increase in VNB margins, absolute VNB and a slight reduction in EV (Exhibit 10). Driven by these tweaks in estimates and the rollover to June 2023 from March 2023, our target price increases to ₹ 660 from ₹ 620, with an implied FY23 P / EV of 2.7x.
With relatively limited room for margin expansion, the heavy-lifting part of VNB growth in FY23 has to be done by APE growth; the management is confident of achieving this, with 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.
The valuation looks attractive, with a return of top-line growth remaining the key for a re-rating.
April 18, 2022