ICICI Prudential Life Insurance Company

Stock Opportunities
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Q4FY18 RESULTS

ICICI Prudential declared a very good set of results for Q4FY18 & FY18.

Results:
https://www.bseindia.com/xml-data/corpfiling/AttachLive/bf0b9ac8-0b6b-41f5-9a2f-54f9ef7f3f49.pdf

Investor Presentation:

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%.

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  • 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.

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  • 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.

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  • 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.

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  • 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.

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  • 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.

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