ICICI Prudential Life Insurance Company Ltd's shares fell 7% in Wednesday trading after the company reported lower-than-expected March quarter results. Analysts highlighted that retail protection's portion of the product mix increased by 60 basis points (bps) year on year, but a smaller share of non-linked savings, annuity, and group protection, high distributor payouts, and weaker fixed cost absorption reduced the VNB (value of new business) margin. While analysts reduced their VNB predictions for ICICI Prudential Life, they mostly maintained their target prices for the stock following the Q4 failure.
"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," Nuvama Institutional Equities said in a statement.
This brokerage has built in inherently lower margins, lowering its FY25E and FY26 VNB estimates by 2.5 percent and 0.9 percent, respectively. "Our target price of Rs 590 remains intact, based on the DCF-derived FY25E/26E P/EV ratio of 1.8/1.6 times. Maintain 'HOLD' as valuations are undemanding," Nuvama stated.
Following the development, the stock plunged 6.73 percent, reaching a low of Rs 553.15 on the BSE. This reduced the stock's year-to-date gains to 7%. According to Antique Stock Broking, the worst of the margins appears to be behind us, as the product/distribution mix is unlikely to deteriorate further, and operating leverage is unlikely to be negative, with mid-teens growth in the near future.
"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 in a statement.
According to Kotak Institutional Equities, the APE trend is steadily improving, even if margins remain rangebound and close to current lows. It retained the 'Buy' rating on ICICI Prudential Life Insurance, which has a fair value of Rs 685.
"We are lowering our VNB estimates down by 2% to reflect lower margins, while our EV expectations are up 3-4% to reflect increased investment variation and unwinding rates. We expect the company to grow in the mid-teens (in line with the industry) while maintaining flat margins.
Motilal Oswal has reduced its forecasts for APE and VNB margins for FY25 and FY26. It still anticipates IPRU to deliver an 18% CAGR in VNB during FY24-26. "Going ahead, the company's ability to sustain strong premium growth and VNB margins will be vital for re-rating of the stock," according to the report.
For the time being, this firm has retained the 'Buy' rating with a target price of Rs 700.
