ICICI Prudential Life Insurance (initiating coverage): Moving up the profitability curve
(IPRU IN, Mkt Cap USD8.2b, INR389, TP INR480, 23% Upside, Buy)
ICICI Prudential Life Insurance (IPRU) is amongst the market leader in the private sector life insurance space, aided by its strong brand, distribution capabilities and product portfolio. It has increased its market share in retail weighted premium to ~12% in FY18 (~6% in FY12) and has alongside reported sharp improvement in persistency ratios. This coupled with change in product mix in favor of protection business and strong cost control has enabled healthy margin expansion (16.5% VNB margin in FY18 v/s 10.1% in FY17). We expect margins to improve further to 18.2% by FY20E, boosting average operating RoEV to ~20% over FY18-20E. We value IPRU at INR480 per share using P/EV multiple of 2.7x (implied new business multiple of 21x). Initiate coverage with BUY.
Growth leadership to sustain; diverse distribution gives distinct advantage
Operating metrics improving; margin gap with peers has narrowed
Strongly positioned in ULIP products; sensitivity to tax rate has reduced
ICICI Prudential Life Insurance Company Limited is a life insurance company, which is a joint venture between ICICI Bank Limited and Prudential Corporation Holdings Limited. The Company provides life insurance, pensions and health insurance to individuals and groups. It conducts business in participating, non-participating and unit linked lines of businesses. Its segments include Par Life, Par Pension, Non Par, Annuity Non Par, Health, Linked Life, Linked Pension, Linked Health and Linked Group. It offers term plans, such as ICICI Pru iProtect Smart; unit linked insurance plans (ULIPs), such as ICICI Pru Wealth Builder II and ICICI Pru Elite Life II; child education insurance plans, such as ICICI Prudential SmartKid with Smart Life; retirement plans, such as ICICI Pru Easy Retirement; traditional savings/money back plans, such as ICICI Pru Cash Advantage and ICICI Pru Savings Suraksha, and Health insurance. It offers products on retail, mortgage and group platforms.
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