MOSL: ICICI PRUDENTIAL LIFE INSURANCE (Buy)-Premium growth moderates; VNB grows at steady pace
(IPRU IN, Mkt Cap USD9.9b, CMP INR489, TP INR565, 16% Upside, Buy)
Pressure on persistency remains
** IPRU reported moderation in premium growth as renewal premium growth was muted due to weak persistency. 13th/25th month persistency declined by ~100bp/230bp YoY. Although the opex ratio stood elevated, VNB growth remained strong at 33% with margins stable at 21%. We expect VNB to increase on the back of the continued focus on protection APE.
** We cut our EPS estimate for FY20/21, primarily as we factor in softer business growth and pressure on opex. Maintain Buy.
VNB margins stable; ULIP mix declines to 68%
** PAT increased 2% YoY to INR3b (7% miss) in 3QFY20. Gross premium was up 9% YoY, mainly led by robust growth in first year premium (+14% YoY) and single premium business (+27% YoY). Renewal premium growth was muted at ~4% YoY (3QFY19: +10% YoY) as the persistency ratio dropped further with 13th/25th month persistency declining by 100bp/230bp YoY.
** Total APE was up ~4% YoY led by 37% YoY growth in protection APE, while savings APE growth was flat. The share of protection business declined to 13.1% (2QFY20: 14.7%). Within savings APE, ULIP APE was down ~11% YoY, resulting in a decline in the share of ULIPs from ~79% in 3QFY19 to ~68%.
** VNB margin stood stable at ~21% due to the higher share of protection business, which resulted in 33% YoY growth in VNB to INR4.3b. VNB growth was mainly led by retail and group protection business.
** Total expenses (commission + opex) were up 26% YoY (higher than premium growth) as operating expenses increased 32% YoY, mainly driven by investment in protection business. Cost to weighted received premium increased 120bp YoY to 16.6% in 9MFY20, while the cost ratio in savings LOB (as reported by the company) declined 90bp YoY to 11.1%.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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