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  1. ICICI Bank stock rated BUY by Nomura; says subsidiaries adding value to firm

ICICI Bank stock rated BUY by Nomura; says subsidiaries adding value to firm

ICICI Bank stock rated BUY by Nomura; says subsidiaries adding value to firm

By: | Published: July 31, 2017 3:48 AM
ICICI Bank, ICICI Prudential Life, ICICI Bank stock, Nomura, ULIP ICICI Pru Life is benefitting from a low base pre demonetisation and growth rates will moderate post Nov-17.

ICICI Prudential Life (56% subsidiary of ICICI Bank – ICICIBC IN, Buy) reported a strong Q1FY18. APE growth was 68% y/y mainly driven by strong growth in ULIP business and VNB margins increased from 10.1% in FY17 to 10.7% in Q1FY18. ICICI Pru Life is benefitting from a low base pre demonetisation and growth rates will moderate post Nov-17, but we expect increased financial savings to drive growth over the medium term. On our conservative valuation of subsidiaries after holding, the discount is Rs 100/share which is 30% of the current market cap for ICICI Bank. There could be upside to our SOP valuations for subsidiaries if we benchmark valuations to current price for ICICI Prudential Life and potentially higher valuations for general insurance and AMC business.

*ICICI Pru Life reported total APE (annualised premium) growth of 68% y/y with saving APE growing at 70% and protection growth of 33% y/y. Protection share in Q1FY18 was 4.5% of APE v/s 3.9% in FY17 but growth in protection business moderated in Q1FY18. ULIP did drive a large part of the growth, with the ULIP mix improving further to 86% from 84% in FY17 and 81% in FY15.

*VNB margin came in at 10.7% vs 10.1% in FY17—margins are based on operating assumptions for FY18 and management indicated that they have not taken the full benefit of improvement in persistency and cost ratios. The margin improvement seen is due mainly to the business mix change with higher share of protection business. Persistency improved further by 100 bps in Q1FY18 v/s FY17.

VNB margin came in at 10.7% vs 10.1% in FY17—margins are based on operating assumptions for FY18 and management indicated that they have not taken the full benefit of improvement in persistency and cost ratios. The margin improvement seen is due mainly to the business mix change with higher share of protection business. Persistency improved further by 100 bps in Q1FY18 v/s FY17.

*Reported PAT was flat at Rs 4.06 bn. Reported expense ratios moderated in Q1FY18 which we believe is an aberration. With high growth in ULIPs, new business is likely to increase and that should lead to pressure on reported profitability in the near term. Premium growth will enjoy a benign pre demonetisation base till Oct-17 and reported growth is expected to remain strong. While growth rates will likely moderate from Nov-17 onwards, we believe increase in financial savings will continue to drive growth over the medium term.From ICICI Bank’s perspective, +80% of valuations of subsidiaries is coming from life insurance, general insurance and AMC business which have been surprising positively on growth and overall profitability. We had valued subsidiaries conservatively at Rs 100/share after taking a holding discount of 15%. There could be upside to our SOP valuations for subsidiaries if we benchmark valuations to

*From ICICI Bank’s perspective, +80% of valuations of subsidiaries is coming from life insurance, general insurance and AMC business which have been surprising positively on growth and overall profitability. We had valued subsidiaries conservatively at Rs 100/share after taking a holding discount of 15%. There could be upside to our SOP valuations for subsidiaries if we benchmark valuations to current price for ICICI Prudential Life and potentially higher valuations for general insurance and AMC business.

 

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