Shares of ICICI Prudential Life Insurance Company Ltd plunged 7 per cent in Wednesday’s trade on less-than-expected March quarter results. ICICI Prudential Life Insurance Company reported a net profit of Rs 174 crore for the fourth quarter of FY24, falling 26 per cent from Rs 235 crore in the year-ago period. The company’s net premium income in Q4FY24 rose 17 per cent to Rs 14,788 crore from Rs 12,629 crore, YoY.
The Value of New Business (VNB) of the company declined 26.44 per cent year-on-year (Y-o-Y) to Rs 776 crore in March quarter (Q4FY24).
The VNB margin dropped to 21.46 per cent as compared to 31.97 per cent in Q4FY23 on the back of a decline in sales of non-participating products after the taxation on higher ticket size policies.
The net premium income of the insurer increased to Rs 2,549.84 crore, rising 9.89 per cent Y-o-Y over Rs 2,320.35 crore in Q4FY23. The Annualised Premium Equivalent (APE) of the company rose 9.54 per cent Y-o-Y to Rs 3,615 crore from Rs 3,300 crore in Q4FY23.
The decline in VNB margins was due to change in operating assumption which was primarily on account of higher operating expenses.
The company expects commissions to be stable, but operating leverage will be invested back into the business. The new product with a new commission structure does not have a low VNB margin. Currently, the company is not changing the pricing of the product.
For financial year 2025 (FY25), the management said business growth is expected to be ahead of the industry, and VNB growth is likely to be in line with business growth. Business growth will be primarily driven by proprietary channels of Agency and Direct, which have delivered better growth than the company level. If the product mix stays stable, VNB margin would be similar. IPRU delivered a weaker-than-expected performance in Q4.
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Analysts noted that retail protection share in the product mix rose 60 basis points (bps) YoY, but a lower share of non-linked savings and annuity and group protection, high distributor payouts and lower fixed cost absorption dragged is VNB (value of new business) margin.
While analysts have cut heir VNB estimates for ICICI Prudential Life, they largely maintained their target prices on the stock post the Q4 miss.
“ICICI Prudential Life is recalibrating its business towards growth, which, we believe, without a strong mother-bank sales support, will come at the cost of margins,” said Nuvama Institutional Equities.
This brokerage is building in structurally lower margins as it trimmed its FY25E and FY26 VNB estimate by 2.5 per cent and 0.9 per cent, respectively. “Our target price remains unchanged at Rs 590, based on DCF-derived FY25E/26E P/EV of 1.8/1.6 times. Maintain ‘HOLD’ as valuations are undemanding,” Nuvama said.
Antique Stock Broking said the worst in terms of margins seems behind as the product/ distribution mix are unlikely to turn adverse hereon and also operating leverage is unlikely to be negative with mid-teens growth in the near-term.
“Factoring in the 4Q miss, we reduce our FY25–26 VNB estimates by 3–4 per cent while we maintain our DCF-based target price of Rs 710,” Antique said.
Kotak Institutional Equities said the APE trajectory gradually turning up even as margins may remain rangebound, closer to current lows. It retained ‘Buy’ on ICICI Prudential Life Insurance with fair value of Rs 685.
“We are revising down our VNB estimates by 2 per cent to reflect lower margins, our EV forecasts increase by 3-4 per cent reflecting higher investment variance and unwinding rates. We expect the company to deliver mid-teen (similar to industry) growth with flat margins.
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