ICICI Prulife shares remain in favor due to modest valuations

The rally has been largely due to the insurer’s ability to contain contraction in business and even shows a quick revival post second Covid wave.

ICICI Prulife has been able to post strong profits even in times of contraction in the business. The company’s new business in terms of annual premium equivalent (APE) grew 36% year-on-year in August. While this is historically strong for the company, it should be noted that growth comes from a low base.

In addition, its peers such as SBI Life Insurance Company Limited and HDFC Life Insurance Company Limited also reported higher growth rates.

What’s more, on a two-year compound annual growth rate (CAGR) basis, ICICI Prulife’s retail business shrank 2% in August, compared to a 20% growth for SBI Life and 30% for HDFC Life. increased.

In short, the life insurer has been able to bounce back from its low growth momentum, but there is still a long way to go.

Recall that in FY20, the life insurer adopted a strategy to reduce its dependence on large-sized and market-linked products and focus more on the security business. After this there was a sharp decline in business, due to which growth remains under pressure. The pandemic dealt another blow to an already sluggish growth rate.

Nevertheless, ICICI Prulife has been able to maintain the value of its new business (VNB) in FY21 despite pressure on growth. However, its new business margin has increased to 25.1% from 21.7% in FY21.

Analyst at Jefferies India Pvt Ltd. Ltd. expects margins to improve further to 26.5% for FY22.

“We expect higher premium growth and new distribution tie-ups to pay off in FY12. We see 21% CAGR in VNB in ​​FY21-24, aided by premium growth,” he wrote in a note.

What will help ICICI Prulife get back on its high growth trajectory, various tie-ups with bancassurance partners and a renewed focus on the group security business.

While the rise in share price suggests that most of the positives have been taken into account, marginal valuations versus equivalents still leave room for the upside.