Shares of ICICI Prudential Life Insurance Company Ltd plunged 7 per cent in Wednesday's trade on less-than-expected March quarter results. Analysts noted that retail protection share in the product mix rose 60 basis points (bps) YoY, but a lower share of non-linked savings and annuity and group protection, high distributor payouts and lower fixed cost absorption dragged is VNB (value of new business) margin.
While analysts have cut heir VNB estimates for ICICI Prudential Life, they largely maintained their target prices on the stock post the Q4 miss.
"ICICI Prudential Life is recalibrating its business towards growth, which, we believe, without a strong mother-bank sales support, will come at the cost of margins," said Nuvama Institutional Equities.
This brokerage is building in structurally lower margins as it trimmed its FY25E and FY26 VNB estimate by 2.5 per cent and 0.9 per cent, respectively. "Our target price remains unchanged at Rs 590, based on DCF-derived FY25E/26E P/EV of 1.8/1.6 times. Maintain ‘HOLD’ as valuations are undemanding," Nuvama said.
Following the development, the stock fell 6.73 per cent to hit a low of Rs 553.15 on BSE. With this, the stock has cut its year-to-date gains to 7 per cent.
Antique Stock Broking said the worst in terms of margins seems behind as the product/ distribution mix are unlikely to turn adverse hereon and also operating leverage is unlikely to be negative with mid-teens growth in the near-term.
"Factoring in the 4Q miss, we reduce our FY25–26 VNB estimates by 3–4 per cent while we maintain our DCF-based target price of Rs 710," Antique said.
Kotak Institutional Equities said the APE trajectory gradually turning up even as margins may remain rangebound, closer to current lows. It retained 'Buy' on ICICI Prudential Life Insurance with fair value of Rs 685.
"We are revising down our VNB estimates by 2 per cent to reflect lower margins, our EV forecasts increase by 3-4 per cent reflecting higher investment variance and unwinding rates. We expect the company to deliver mid-teen (similar to industry) growth with flat margins.
Motilal Oswal has cut is estimates for APE and VNB margin for FY25 and FY26. It still expects IPRU to deliver an 18 per cent CAGR in VNB over FY24-26. "Going ahead, the company’s ability to sustain strong premium growth and VNB margins will be vital for re-rating of the stock," it said.
For now, this brokerage retained is 'Buy' with a target price of Rs 700.