Full year should be ~15% yoy growth, but Q4’18 expected to be lower than Q4’17. Seems to be on account of a very high business quarter last year, rationalisation of expenses recently and tighter internal controls on account of Rajasthan misselling issue.
ICICI Prudential declared a very good set of results for Q4FY18 & FY18.
Few interesting points from results & conf call ->
- VNB & VNB Margin: VNB grew from 6.66bn (FY17) to 12.86bn (FY17) resulting in growth of 93%. The VNB margin increased by phenomenal 640bps from 10.1% to 16.5%.
- Embedded Value: IEV increased from 161.84bn to 187.88bn despite healthy dividend of 11.88bn. EVOP of 36.8bn & RoEV of 22.7% are very healthy. The company said that dividend will go down in FY19 as they need to preserve capital to support growth in non-ULIP business. My feeling is healthy dividend is probably paid to help in troubles of parent group.
- Protection APE: The protection business grew by phenomenal 71% i.e. 2.6bn in FY17 to 4.46bn in FY18. This has lead to growth in VNB & VNB margin. The growth in credit cover business was higher than individual life businesses. For the first time, I noticed credit protect products - Loan Protect, Loan Protect Plus, Group Loan Secure. This business has been such a driving force for HDFC life. With more players trying to get into credit protect segment, it would be interesting to track how this space evolves.
Retail Franchise: ICICI Pru has a very retail focused franchise where 98% of APE is from retail. Retail franchise has better margins than group business (high proportion for HDFC Life).
Cost Efficiency: ICICI Pru has reduced cost/TWRP from 15.1% to 13.7% i.e. reduction of 1.4%. As non-ULIP portfolio grows, it would be interesting to see how this number evolves. The cost has gone up for HDFC Life.
Renewal Premium: Renewal premium has grown at 23% for FY18 compared to 11% for HDFC Life. This might be on account of lower share of group business or more retail focused franchise.
Tax rate assumption: The company has used lower effective tax rate similar to what some of the industry players have been doing. This has added ~ 1.4bn in EV & ~1.3% in VNB margin.
Valuation: I still struggle to put a valuation number to life insurance companies. After going through several research reports for Indian & overseas insurance companies, appraisal value (AV) seems like one decent metric. AV = EV + multiple * VNB. Many reports seem to have used multiple ranging from 10-30. One can use his own multiple & come up with AV.
Disc - Forms more than 5% of portfolio. No transactions for last 90 days.
Very good set of numbers!
However my observations are that ape ticket size for protection is coming down . Is there some sort of pricing pressure??
There has been a dip in market share and growth is less than that of industry growth for the period
Most encouraging thing is faster growth in protection when compared to savings. Protection. Share has increased to 6 % from 4%
It will be interesting to see how vnb margins shape up when protection share goes to 10-15%