Sharekhan has initiated a BUY call on ICICI Prudential Life Insurance (ICICI Pru Life) with a revised target price of Rs 920. This reflects a positive growth outlook, driven by increasing APE (Annualised Premium Equivalent) through diversified channels and a strong focus on VNB (Value of New Business) growth. ICICI Pru Life has demonstrated robust APE growth ahead of the industry, supported by its multi-product, multi-channel distribution strategy. Despite regulatory changes affecting surrender penalties, the company’s VNB margins are expected to remain stable. The stock currently trades at attractive multiples, indicating a significant upside for investors.

Strong APE Growth Outpaces Industry

APE growth momentum:
For the third consecutive quarter, ICICI Pru Life has posted APE growth higher than the industry, largely due to its enhanced multi-channel and multi-product approach. On a year-to-date (YTD) basis for FY25, retail APE grew 40.9% y-o-y, with total APE up by 36.2%. This growth has been propelled by proprietary channels such as agency and direct, supported by strategic investments in distribution mix.

Market share gains:
The company’s market share in retail APE improved to 7.2%, reflecting an increase of 121 basis points (bps) y-o-y, while total APE market share climbed by 87 bps to 6.3%. ICICI Pru Life remains well-positioned to continue growing its APE ahead of industry benchmarks.

Optimising Distribution and Product Mix

Diversification across distribution channels:
ICICI Pru Life has made significant strides in balancing its distribution channels. As of Q1 FY25, agency and bancassurance (Banca) channels each contributed 29% to the APE mix, while the group/direct/partnership channels contributed between 12-15%. Agency and direct business showed strong y-o-y growth of 62% and 40%, respectively, underlining the effectiveness of the company’s multi-channel strategy.

Product mix contribution:
The company has successfully diversified its product portfolio, with non-linked savings, protection, and annuity products driving growth. This diversification helps in mitigating the impact of regulatory changes, particularly those related to surrender penalties.

Impact of Regulatory Changes on VNB Margins

Resilience to new surrender guidelines:
With a lower share of non-participating (non-par) products, ICICI Pru Life is better positioned to manage the impact of new surrender penalty guidelines. To offset the higher surrender values, the company has introduced products with trail-based commissions and improved its pricing and payout structures.

VNB margins expected to remain stable:
While VNB margins are expected to be range-bound, the company’s focus remains on absolute VNB growth, driven by product-level margin improvements. The combination of better pricing, product mix, and strategic distribution ensures that ICICI Pru Life’s VNB growth remains robust.

Valuation and Stock Performance

Attractive valuation:
ICICI Pru Life is currently trading at 2.3x/2.0x/1.8x its FY25E/FY26E/FY27E EVPS (Embedded Value per Share). Given the healthy growth outlook, including an estimated 18% CAGR in APE/VNB over FY24-FY27, the stock is considered attractive with a price target of Rs 920. The stock's current market price is Rs 780, representing a potential upside of approximately 18%.

Risks to Growth

Potential challenges:
Key risks to ICICI Pru Life’s growth include slower-than-expected APE growth, lower VNB margins, and adverse regulatory changes. Any significant shift in regulatory policies could affect profitability and growth projections for the company.

Outlook:
ICICI Pru Life’s strategic focus on diversification across products and distribution channels, combined with reduced reliance on its parent bank, positions it well for sustained growth. The company's commitment to outpacing industry growth in APE, while maintaining VNB margins, makes it an attractive investment in the insurance sector. Investors are advised to consider the stock’s upside potential, with the target price set at Rs 920.