Buy This Finance Sector Stock With Low Debt For Potential Upside Of 24%

BOB Capital has given buy rating to the stock of ICICI Prudential Life Insurance Company Ltd. for a potential gain of 24% if you buy it at its current market price of Rs 520 apiece. The Q1 APE grew 25% YoY to Rs 15.2bn led by the savings segment at 25% and protection at 22%.

1. Stock outlook

The current market price of ICICI Prudential Life Insurance is Rs 520 apiece with its 52-week high at Rs 724.30 apiece and 52-week low at Rs 430 apiece. According to BOB Capital, if you buy the stock at its current market price of Rs 520 it can reach its specified target price of Rs 645 apiece with a potential return of 24%. The stock has given a return of 37% in 2 years and 9.8% in 5 years.

2. Strong APE growth

IPRU's Q1FY23 APE grew 25% YoY to Rs 15.2bn wherein protection APE (22% share) rose 22%. Savings grew 25% YoY to Rs 11.9bn led by the non-linked and annuity segments. We factor in a 16% CAGR in APE growth during FY22-FY25 to Rs 120bn owing to IPRU's focus on a balanced product mix. VNB increased 32% YoY to Rs 4.7bn in Q1FY23, validating management's target of doubling business from ~Rs 13bn in FY19 to ~Rs 26bn this year. The Q1 VNB margin of 31% (vs. 28.0% in FY22) stems from a focus on higher margin products despite a faltering retail protection business (carrying the highest margins). We expect absolute VNB to clock a 16% CAGR over FY22-FY25 to Rs 34bn with VNB margins of 28-29% over the forecast period.

3. Gross premium growth muted

Gross premium grew at a modest 6% YoY led by 26%/18% growth in single/first year premium. New business premium (NBP) increased 23% YoY whereas renewal premium declined 6 percent. The surplus on policyholders' account more than doubled to Rs 3.9bn and the company also reported a shareholders' profit of Rs 1.6bn (loss of Rs 1.9bn in Q1FY22). The share of the bancassurance channel in total APE dipped from 39% in Q1FY22 to 35% in Q1FY23, with the decrease in ICICI Bank's share offset by strong growth in other banks' share (15% of total APE vs. 4% three years ago). The group channel has posted robust growth with its share rising to 21%.

4. Cost ratios elevated

The opex ratio of 12.6% (11.2% in Q1FY22) looks elevated on a 20% increase in absolute opex but remained lower than new business growth. Commission ratio at 4.2% was broadly stable. We factor in opex ratios of 9.8%/ 9.7%/9.7% for FY23/FY24/FY25 and commission ratios at 4.5%/4.6%/4.6%.

5. Valuation

According to BOB Capital, "The stock trades at 1.8x FY24E P/EV. Given adequate solvency margins and high persistency, offset by a decline in market share (NBP), we value the company at 2.2x FY24E P/EV - a 10% discount to long-term mean- leading to a TP of Rs 645 with 25% upside from the current price." 

6. About ICICI Prudential Life Insurance

It is promoted by ICICI Bank Limited and Prudential Corporation Holdings Limited. ICICI Prudential Life began its operations in the fiscal year 2001. On a retail weighted received premium basis (RWRP), it has consistently been amongst the top companies in the Indian life insurance sector. Our Assets Under Management (AUM) at 31st March 2022 were 2,404.92 billion. It has market capitalization of Rs 74,878 crore.

Disclaimer

The stock has been picked from the brokerage report of BOB Capital Markets Ltd. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.