ICICI Prudential Life Insurance Company (IPRU IN) - Q2FY26 Result Update - Growth momentum to pick up; margin improves - BUY
Shreya
Khandelwal
Vice President Research, PL Capital
ICICI Prudential Life Insurance Company (IPRU IN)
Rating: BUY | CMP: Rs597 | TP: Rs710
Q2FY26 Result Update
Growth momentum to pick up; margin improves
Quick Pointers:
Weak APE
growth in Q2; expect volumes to pick up in H2
Margin
improves to 24.4%; drag from GST exemption to reflect in H2
Q2 APE grew -3% YoY on an unfavourable base due to a
decline in ULIP. We expect the momentum to pick up in H2FY26 (15.5% YoY
growth), led by uptick in credit life/ ULIP and healthy traction in retail
protection and NPAR. VNB margin expanded to 24.4% in 2QFY26 led by a favourable
shift in product mix. Shift towards NPAR, higher sum assured and rider
attachment rates are likely to offset the drag on profitability from GST
exemption. We make marginal changes to our FY26/ FY27E APE growth estimates and
increase FY26/ FY27E VNB margin factoring in a strong margin profile in H1FY26.
We use the appraisal value framework to value IPRU at a TP of Rs710 (1.9x FY27E
P/EV). Retain BUY.
Expect growth
to pick up in H2: IPRU Life saw weak APE growth in 2QFY26 (-3% YoY) due to a
decline of 8.5% YoY in ULIP. Protection growth remained flat YoY affected by
(1) soft growth in retail protection (1.8% YoY) on a high base and (2) weakness
in credit life volumes, especially in MFI. Within the Non-linked portfolio
(+11.9% YoY), company highlighted a favourable mix with a shift in customer
preference towards NPAR vs. PAR products. Linked / Non-Linked / Annuity / Group
/ Protection comprised 49.0% / 22.1% / 4.8% / 6.8% / 17.3% of APE in 2QFY26.
Company expects strong growth in H2, factoring in a benign base, pick-up in
credit life and ULIP volumes and sustained demand in retail protection and NPAR.
We build an overall APE growth of ~7% in FY26E, driven by a strong H2FY26E
(+15.5% YoY over H2FY25).
VNB margin
improves; drag of GST exemption in H2: While 2QFY26 VNB grew 1% YoY to Rs 5.9
bn, Q2 VNB margin rose to 24.4% (H1FY26 VNB Margin at 24.5%) mainly on account
of a favourable product mix (shift towards NPAR). Company continues to engage
with distributors on lower commissions and is evaluating several cost
optimisation measures to mitigate the impact of the recent GST exemption on
FY26 VNB. Higher sum assured/ rider attachment and favourable movement of the
yield curve are likely to offset the drag on profitability. While we expect H2
VNB margin to be lower at 23.4% due to the impact of GST exemption, we increase
our FY26/ FY27E VNB Margin estimates by 80/90 bps to 23.8%/ 24.3% to account of
better-than-expected performance in H1FY26.
Impact of ~1%
on FY26 EV; persistency trends normalise: Embedded Value grew by 9.7% YoY to Rs
505bn and company has indicated an impact of ~1% on FY26 EV due to the benefit
of input tax credit not being available on the existing book. 13M persistency
normalised to 85.3% (in-line with FY23 levels) while company highlighted a drop
in 61M persistency due to a change in definition. AUM was flat YoY at Rs 3,214.9
bn and company will be exercising a call option for Rs 12bn of sub-debt in
Nov-25. Post exercising the call option, it expects the solvency ratio to
remain above the regulatory threshold of 150% (currently at 213%).
Prop channels to do the heavy lifting in H2: Agency/ Direct/ Banca/ Partnership Distribution/ Group contributed 24.9%/14.9%/30.6%/12.6%/17.1% to overall APE in 2QFY26. Proprietary channels (agency and direct) saw a de-growth of 23%/ 9% YoY on a high base and company expects a pick-up in H2. Banca APE was flat YoY and the run-rate for ICICIB was stable (Rs ~1 bn per month). H1FY26 Total Cost/ TWRP improved to 19.2% (vs. 22.0% in H1FY25) and company highlighted positive operating leverage resulting in an improved margin profile.
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