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JMFL
I-Pru Life (Buy)
CMP: ₹402.65
Target: ₹460
We expect strong growth of 16 per cent CAGR in APE over FY17-20E for the life insurance industry driven by 1) Strong long-term growth drivers such as a) robust double digit nominal GDP growth, b) favourable demographic profile, c) high financial savings, d) rising income levels, and e) increasing urbanization; 2) stable life insurance penetration of 2.7 per cent; 3) recent strong run up in the equity market augers well for the sale of unit linked products; 4) declining interest rates reducing the competitive intensity from other saving products especially term deposits.
We believe ICICI Prudential Life (I-Pru) is well placed to outperform industry growth led by a) diversified distribution network with a strong bancassurance channel; b) focus on ULIP portfolio, which constituted 82.6 per cent of APE in FY16; and c) improvement in productivity. Further this growth for I-Pru has been driven by improvement in profitability metrics with RoEV improving to 15.3 per cent in FY16 (11.6 per cent in FY14) with improvement in 13-month persistency ratio to 83 per cent in FY16 (72 per cent in FY14) and cost ratios (fell from 18.7 per cent in FY12 to 15 per cent in FY16).
Going ahead, we forecast 20 per cent APE CAGR over FY17-20E for IPRU with RoEV expected to improve to 17 per cent by FY20E.
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