Buy ICICI Prudential Life Insurance; target of Rs 450: Motilal Oswal

Motilal Oswal's research report on ICICI Prudential Life Insurance

IPRU reported a muted 1QFY19 performance, with shareholder net profits declining 31% YoY (25% miss) even as policyholder surplus stood in line at INR3b (est. of INR3b). Key highlights of 1QFY19: (a) 13% YoY growth in net premium income due to a 13% decline in new business premium. (b) Total commission expenses grew 29.3% YoY due to a change in product mix, while opex increased 44.5% due to higher advertisement/employee cost. (c) New business margin improved to 17.5% from 16.5% in FY18. (d) Share of protection business in total APE increased to 8.2%. (e) 49th month persistency improved by 450bp to 63.7%.

Outlook

We have cut our PAT estimates by ~14%/17% for FY19/FY20 to factor in lower premium income and higher strain from new business due to an increase in share of protection business. We expect IPRU to deliver a 14.4% CAGR in new business APE over FY18-20, while margins are likely to improve from the current levels of ~17.5%. We, thus, estimate 20% CAGR in VNB over FY18-20, while RoEV is expected to sustain at ~16.5%. We value IPRU at INR450 per share, which corresponds to 2.5x FY20E EV. Maintain Buy.