Shares of ICICI Prudential Life Insurance have soared 30% since the beginning of November last year to now trade at Rs 524 per share. However, that might not be the end of the rally for this insurance stock as global brokerage and research firm Jefferies sees at least another 20% upside for ICICI Prudential Life. “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,” analysts at Jefferies said in a report.
Next fiscal to aid revival
So far in financial year 2021, ICICI Prudential Life has lagged behind on premiums, recording 33% decline in retail premiums against a 6% decline for private players. Analysts at Jefferies said this was owing to a sharper decline in Ulips, lower sales of PAR products and slower pick-up in the protection business. In the next fiscal year, Ulip sales are expected to pick up along with the sales of PAR products. The report further adds that the gap in the pricing of protection policies has also narrowed, helped the stock.
ICICI Prudential has increased its Banca partnerships through tie-ups with IIB, RBL Bank, AU SFB, IDFC First Bank & NSDL Payments Bank. “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,” Jefferies said.
Ulips accounted for nearly 65% of the product mix of ICICI Prudential Life. Over the next few year, the share of other offerings such as credit protect, group savings, retail protect, and non-par are expected to grow.
Target price and valuation
“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,” the report said. Jefferies sees the stock currently trading at 2.4x FY22 P/EV while expecting a favourable risk-reward situation and an uptick in growth, driving re-rating. “We maintain our BUY call with a target price of Rs 630 based on 2.6x Dec-22 P/EV,” they said. While in the upside scenario with growth phase APE CAGR at 10%, VNB margins in growth phase at ~26%, and RoEVs of 17% the brokerage firm sees a target price of Rs 720 per share.
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