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ICICI Pru Life down 10% as VNB margin misses estimates; analysts cut target

Why are ICICI Prudential shares falling: ICICI Prudential share tumbled 9.9 per cent to hit an intraday low of Rs 572.35 per share on the BSE as against a 0.5 per cent rise in Sensex index today

ICICI prudential life insurance

Photo Credit: Ruby Sharma

Nikita Vashisht New Delhi

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ICICI Prudential Life share price: Weaker than expected value of new business (VNB) margins in the December quarter (Q3) of the current financial year (FY25) sent ICICI Prudential Life Insurance share price (ICICI Prudential share price) into a tailspin on Wednesday, January 22, 2025. 
ICICI Prudential share tumbled 9.9 per cent to hit an intraday low of Rs 572.35 per share on the BSE as against a 0.5 per cent rise in the benchmark Sensex index today.
  Analysts have cut their margin estimates and target price for the stock, factoring-in the recent performance, and opine that premium growth and improvement in margins will be crucial for ICICI Prudential going ahead.
 
  "ICICI Prudential’s VNB margin was under pressure during the quarter, mainly owing to the shift in product mix towards unit-linked insurance plan (ULIPs). Considering the Q3 performance, we cut our annualised premium equivalent (APE) growth and VNB margin estimates and expect new business APE, VNB, and net profit PAT to grow 23 per cent, 15 per cent, and 37 per cent year-on-year (Y-o-Y) in FY25 to Rs 11,150 crore, Rs 2,560 crore, and Rs 1,170 crore, respectively," said analysts at Motilal Oswal Financial Services.  It expects APE and VNB to grow at a CAGR of 19 per cent and 18 per cent during FY24-27 
  On Wednesday, ICICI Prudential Life reported a contraction in VNB margin of 170 basis points Y-o-Y and 220 bps quarter-on-quarter to 21.20 per cent in Q3FY25. The metric is the profitability margin of the life insurer. 
  While this was below Street estimates of around 23 per cent, it was also lower than the VNB margins of peers like HDFC Life (26.1 per cent) and SBI Life (26.9 per cent). 
  The management attributed the margin decline in Q3FY25 to an uptick in growth of group savings. Excluding group savings, margins would have been flat sequentially, it said. 
  Overall, ICICI Pru Life’s APE increased by 27.8 per cent Y-o-Y to Rs 2,438 crore. Segment-wise, ULIPs drove the APE growth in Q3, surging 42 per cent Y-o-Y. Non-linked savings declined 10 per cent, while protection grew 9 per cent Y-o-Y. Growth in the group savings business was a strong 3.5x Y-o-Y. 
  APE is the sum of annualised first-year regular premiums and 10 per cent weighted single premiums and single premium top-ups.  According to analysts, the business trajectory, after a sharp margin cut last year and low base benefits this year, will be more normalised hereon, with investments in building channel gradually playing out. Besides, the company has a large ULIP share, which will decline over time as capital market buoyancy moderates, changing the margin-growth trade-off, they said.
  That apart, while the VNB, which shows the present value of future profits expected from new policies sold during a given year, improved by 18.6 per cent Y-o-Y to Rs 517 crore in the December quarter, the net profit witnessed a 43.17-per cent Y-o-Y growth to Rs 325.65 crore.
  For the first nine months of FY25 (9MFY25), VNB improved just 8.5 per cent Y-o-Y to Rs 520 crore, and margin fell to 22.8 per cent due to product mix. The management indicated that the impact on margins due to increased surrender charges was minimal as 60–65 per cent of non-linked savings business sales is PAR, where the impact is low.
  On a premium basis, year-on-year persistency ratios improved across all cohorts with the 13th month, 49th month, and 61st month persistency ratios at 85.8 per cent, 66.8 per cent, and 63.1 per cent, respectively. Total assets under management (AUM) grew 8 per cent Y-o-Y to Rs 3.1 trillion, while the solvency ratio stood at 211.8 per cent.
  "To bake in the Q3 developments, we tweak our APE estimates slightly, while cutting our VNB Margin by 90-110bps. This results in a roughly 4 per cent cut in VNB over FY25-27. While growth remains robust, weaker margins drive the inferior RoEV profile. We reiterate ‘ADD’ on the stock with a revised down target price of Rs 725," said Emkay Global. 
Nomura, too, cut its target price to Rs 715 from Rs 735 as it believes positives are largely priced into the current valuation.  "We expect the company to deliver 17 per cent and 14% per cent CAGR in APE and VNB over FY24-27, and maintain our ‘Neutral’ rating on the stock," it said.
 

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First Published: Jan 22 2025 | 12:31 PM IST

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