Value Pick: Brokerages see up to 46% upside in ICICI Pru shares as Q4 Value of New Business, margins improve

ICICI Prudential Life Insurance Company reported robust earnings in the fourth quarter of the financial year 2021-22. This makes several brokerages bullish about the ICICI Pru stock. The optimism is on the back of improved Value of New Business (VNB) and margins. They see up to 46 per cent upside in share price on a long-term basis. 

The company has reported around over 33 per cent year-on-year (YoY) growth in the VNB to Rs 2,163 crore in FY22, while its VNB margins improved to almost 30 per cent in Q4FY22 from 23.6 per cent YoY, the company said in a filing to exchanges on Saturday.  

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The stock on Monday surged over 5 per cent to touch the day’s high level of Rs 568.9 per share intraday, eventually closing flat with a positive bias at Rs 542.2 per share on the BSE. 

YES Securities 

The group term insurance of ICICI Pru continues to pick up the slack for now, even as management guides for a bounce-back in retail protection in FY23. The target of doubling FY19 VNB by FY23 stays intact, implying a required VNB growth of 22.5 per cent in FY23.  

The overall Embedded Value has grown at 8.7 per cent YoY in FY22 to Rs 316.25 billion, the growth being held back by de-growth in Adjusted Net worth.  We maintain a Buy rating on the stock as the company is poised to see renewed interest in retail protection. 

YES Securities revised its price target to Rs 787 per share, which implies around a 46 per cent upside in the insurance company stock. We value ICICI Pru at 3.1x FY23 P/EV for an FY23E/24E RoEV profile of 17.3/17.8 per cent. 

IIFL Securities 

VNB margin saw 620 basis points YoY expansion to 29.7 per cent, led by a higher share of protection and non-par savings mix; hence, VNB grew 31 per cent YoY. IPRU reiterated its aspiration of doubling FY19 VNB over 4 years, implying 23% growth in FY23.  

We believe IPRU’s product and distribution mix is becoming more balanced. We raise VNB estimates for FY23ii-24ii by 13 per cent on higher margins and raise the target price to Rs 710 per share (31 per cent upside) implying 2.5x 2YF P/EV. We forecast a 16%/18% APE/VNB CAGR over FY22ii-24ii.  

The company’s well-established franchise and strong capital position make it an attractive story to own in the longer term. The recent correction in the stock gives a good entry point, as the stock is trading at 1.9x on FY24ii P/EV, below its historical average valuations.  

Axis Securities 

ICICI Prudential Life Insurance (IPRU) is steadily moving towards a balanced business profile through product diversification by reducing the share of low-margin ULIP (unit-linked insurance plans) and increasing focus on high margin products like protection and NPAR (Non-Participating Policy).  

Management aims to double the value of new business by FY23 (on FY19 base) – this seems achievable given sustainable growth led by its product diversification strategy and improving VNB margin which is among the best in the industry.  

A well-entrenched distribution network with a renewed focus on digital and agency augurs well for business growth. We Initiate coverage on ICICI Pru with a BUY rating and target price of Rs 650 per share, which implies a potential growth of around 22 per cent.