ICICI Prudential gains 10% even as Q4 net profit declines 31%

Shares of ICICI Prudential Life Insurance Company (ICICI Pru) were up 10 per cent  to Rs 370 apiece on the BSE on Monday even as its net profit declined 31 per cent for the March quarter of FY20 (Q4FY20) to Rs 179 crore impacted by weak business trends due to the lockdown in March. the company had net profit of Rs 261 crore in the year-ago period.

Prior to Q4 results, in past two trading days, the stock of ICICI Prudential Life has underperformed the market by falling 9 per cent, against a 0.17 per cent decline in the S&P BSE Sensex.

At 09:33 am, the stock was trading over 7 per cent higher at Rs 361.25 apiece on the BSE as compared to 625.5-point or 2 per cent rise in the benchmark index.

The company's pre-tax profit for the quarter declined 38 per cent year-on-year (YoY) to Rs 172 crore due to losses in investment amounting to Rs 18,898 crore. For the full year (FY20) the net profit of the insurer shed 6 per cent to Rs 1,069 crore from Rs 1,141 crore. The company announced its results on Saturday (April 25). READ MORE

For the month of March, the insurer’s new business premium fell 32 per cent to Rs 983 crore compared to Rs 1,451 crore in March, 2019. New business received premium of the company saw a healthy growth of 20 per cent to Rs 12,348 crore in FY20 compared to Rs 10,252 crore in FY19. The annuity new business premium registered a growth of 52 per cent to Rs 1,043 crore in FY20 compared to Rs 685 crore in FY19. 

The insurer’s net premium rose 4.16 per cent to Rs 10,475 crore in the quarter ending March (Q4FY20) compared to Rs 10,056 crore in the same period last financial year. In FY20, the net premium earned by the company rose 7.52 per cent to Rs 32,879 crore compared to Rs 30,578 crore.

The value of the new business (VNB) grew 21 per cent to Rs 1,605 crore in FY20 compared to Rs 1,328 crore in FY19. The insurer’s VNB margin was 21.7 per cent for FY20 as compared to 17.0 per cent for FY19. The increase in VNB margin is primarily on account of increase in protection mix, the company said.

Analysts at Prabhudas Lilladher note that the company's positive surprise was on strong new business profit margins (NBMs) of 21.7 per cent (v/s expectation of 20.7 per cent) despite taking in higher effective tax rate impact on the removal of dividend distribution tax (2.5 per cent on EV). Improvement in margins was led by mix change towards nonlinked savings & protection, but a strong cost control with de-growth in savings segment costs both on variable and fixed was a key barometer for a beat in margins. 

"In our view, business will take time to move up with only protection growth visible and savings may not recover immediately given capital market conditions, keeping overall pressure on growth. We retain our Accumulate stance with a revised target price of Rs 385 (from Rs 529) based on 1.8x Mar22 EV & 15x NBP (changed from 2.5x Sep-22EV)," the brokerage said. 

Motilal Oswal Financial Services (MOFSL) notes that ULIP demand is likely to remain muted amidst challenging macros due to the COVID-19 pandemic, thus, putting pressure on overall premium growth. Protection/annuity segments are though likely to see healthy growth and should help drive steady margins (23% by FY22E). "We, thus, estimate IPRU Life to deliver CAGR of nearly 12 per cent in value of new business (VNB) over FY20-22E led by 11% new business Annual premium equivalent (APE) while operating Return on Embedded Value (RoEV) should moderate to ~16% for FY22E. Maintain Buy with a revised target price of Rs 430 (2.2x Sep’21E EV)," the brokerage said.