Better growth can aid rerating; we see good risk-reward. ICICI Pru Life can benefit from a combination of stability in product-mix & expansion in distribution that will lift growth in FY22-23, besides a low base. It has beefed-up banca partnerships with likes of IIB, RBL, AU-SFB, IDFC-First, NSDL Payments Bank. Better growth can aid rerating; we see good risk-reward.
Maintain ‘buy’.
Product issues should stabilise in FY22. During 9MFY21, ICICI Pru Life has lagged on premiums with 33% decline in retail premiums against 6% decline for private players and better growth for listed peers. This was due to combination of sharper decline in Ulips (which has been higher share of its premiums), lower sales of PAR products and slower pick-up in protection business. We believe that some of these drags will get resolved in FY22 as Ulip sales can pick-up with relatively better performance of equities/ debt — Nifty up 15% in 2020 sales of PAR products that were impacted by change in preference for ICICI Bank can pick-up with leveraging of agency force ICICI Pru Life has launched guarantee product and with steep-yield curve offering better hedging capacity, ICICI Pru Life may get its share and the gap in pricing of protection policies has also narrowed now. We remain cautious about the guaranteed return products, but also feel that in post-Covid environment, hedging is tad easier given steep yield curve.
ICICI Pru Life has ramped-up its Banca partnerships through tie-ups with IIB, RBL Bank, AU SFB, IDFC First Bank & NSDL Payments Bank. It now has tie-ups with over 20+ Banks. Investments in agency base also continue. We believe that benefits from new partnerships could be front-loaded as low-hanging fruits can be plucked and will support premium growth in FY22-23.
Scope to rerate; Buy stays. Over FY21-23, we see uptick in premium growth (APE) to 18% Cagr and 16% in VNB, albeit on a low base. This will also aid core growth in EV; we see operating ROEV of 15% over this period. Trading at 2.4x FY22 P/EV, we believe that risk reward is favourable and uptick in growth can drive rerating.
We maintain our BUY call with a target price of Rs630 based on 2.6x Dec-22 P/EV.
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