Buy ICICI Pru Life; target of Rs 605: Emkay Global Financial

Emkay Global Financial's research report on ICICI Pru Life

IPRU Life reported a decent 9MFY23 financial performance, led by positive surprise on VNB margin at 32% (vs our estimate of 30.6%) that gave Management the confidence to reiterate doubling of FY19 absolute VNB in FY23. Absolute VNB reported growth of 23.2% YoY for 9MFY23 at Rs17.1bn, driven by strong VNB margin (+4.9ppts YoY) and moderate APE growth (+4% YoY), beating our estimate by 5%. The sharp increase in margin is owing to increase in Non-Par saving, Annuity and Protection products in the product mix. Retail protection appears to be finally turning the corner, with Q3FY23 Retail protection APE rising sequentially and also exceeding Q4FY22 levels. On the distribution front, all channels, except ICICI Bank, are clocking satisfactory-to-strong performance. ICICI Bank’s share in the APE mix has gone down to ~18% in 9MFY23, but decline in the channel APE persists. Net net, developments in VNB margin, retail protection, non-ICICI Bank channel distribution and persistency afford increased confidence to the company, and the FY24 APE growth outlook holds the key for IPRU shares. Management appears positive about FY24 growth prospects, on grounds of the robust growth performance in agency and ex-ICICI Bank banca partnerships as well as the declining impact of ICICI Bank channel de-growth.

Outlook

Accounting for the developments in 9MFY23, we marginally tweak our FY23-25 estimates and reiterate our BUY rating, with our Dec-23E Target Price remaining unchanged at Rs605/share, implying FY24E P/EV of 2.1x. Post their underperformance over the past few years, IPRU shares are now valued at FY24E P/EV of 1.7x – still meaningfully undervalued versus peers and own history, and likely reflecting the negativity of the poor top-line growth and the muted expectation being already in the price. With the valuation relatively undemanding, we expect IPRU shares to re-rate, once top-line growth returns.