Retain ‘buy’ on ICICI Pru Life with TP of Rs 500

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Published: April 26, 2018 1:48:41 AM

ICICI Prudential Life reported further margin expansion, 140 bps qoq and 880 bps yoy to 18.9% in 4QFY18. Favorable operating experience, mostly on account of better persistency, and sharp assumption changes (one-off) led to high operating RoEV (22.7% versus 16.5% in FY2017; 17.5% excluding assumption changes).

ICICI Prudential Life reported further margin expansion, 140 bps qoq and 880 bps yoy to 18.9% in 4QFY18.ICICI Prudential Life reported further margin expansion, 140 bps qoq and 880 bps yoy to 18.9% in 4QFY18.

ICICI Prudential Life reported further margin expansion, 140 bps qoq and 880 bps yoy to 18.9% in 4QFY18. Favorable operating experience, mostly on account of better persistency, and sharp assumption changes (one-off) led to high operating RoEV (22.7% versus 16.5% in FY2017; 17.5% excluding assumption changes). We revise EV forecasts, retain BUY with TP of Rs 500 (from Rs 450). ICICI Prudential Life reported VNB margin of 18.9% in 4QFY18 as compared to 17.5% in 3QFY18 from 10.1% in 4QFY17; two reasons, viz. (1) new ULIP products (launched in June 2017) have higher margins and (2) higher share of protection business.

ICICI Prudential Life’s new ULIPs (launched in July 2017) had higher policyholder charges and a variable cost structure (which led to lower expenses). ICICI Prudential Life’s protection business increased to 9.8% of APE from 3.9% in 4QFY17 and 4-4.5% over the past three quarters. The management, however, highlighted that higher ratio in 4QFY18 includes adjustment on account of reclassification of group term business (discussed later) and hence not comparable yoy/qoq.

ICICI Prudential Life changed its assumption on tax rates (discussed later) during 4QFY18.

This translated into calculated VNB of Rs 520 crore in 4QFY19; in our calculation, we have removed the impact of change in tax assumptions during 4QFY18 leading to calculated VNB of R420 crore (18.9% margins) in 4QFY18.

ICICI Prudential Life reported operating RoEV of 23% in FY2018 as compared to 17% in FY2016-17. EVOP growth was high at 60% YoY. Assumption changes, primarily on account of tax rate assumptions (explained later in the note), led the sharp rise. Excluding these assumption changes, operating RoEV would be 17.5%, about 100 bps higher yoy.

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