During FY19, ULIP APE fell 2.7% y-o-y v/s an average 18% growth over FY17-19. Protection business, though, has grown at 62% y-o-y and its share in the total APE improved to 9.3%.
The trajectory in new business premium at ICICI Prudential Life (IPru Life) seems to be stabilising as the company reported ~5.3% year-on-year APE growth in Q1FY20 against flattish growth in FY19. Higher new business strain driven by rising mix of the protection business and associated advertisement & marketing cost impacted earnings growth in FY19. We estimate earnings growth to turn positive at 9% CAGR over FY19-21 led by (a) protection business continuing to grow at a robust pace, thus driving margins, (b) improved operating leverage aided by increasing use of technology, and, (c) recovery in the core savings business. We estimate IPRU to report 22% CAGR in VNB over FY19-21E led by 17% CAGR in new business APE while operating RoEV is expected to sustain at 19%. Maintain ‘buy’ with TP of Rs 475 per share (2.3x Mar-21E EV).
During FY19, ULIP APE fell 2.7% y-o-y v/s an average 18% growth over FY17-19. Protection business, though, has grown at 62% y-o-y and its share in the total APE improved to 9.3%. Though FY20 has started on a softer note, we believe introduction of new customer-friendly ULIP product and stable market performance should drive ULIP sales over FY19-21E while the growth in protection business remains robust.
Protection new business premium mix has improved from 4.6% to 20.6% over FY16-19. Retail protection and credit life forms 61%/22% of the total protection APE, enabling IPRU Life to report robust margins in the Protection business with VNB from protection business constituting 59% of total VNB. We conservatively estimate VNB margins to rise 260 bps to 19.6% by FY21E. In FY19, IPRU displayed improved persistency across cohorts (barring 25th month) despite markets being volatile. With improving customer awareness and product proposition, we expect persistency ratios to improve further, thereby aiding margin expansion and EV growth.