Shares of ICICI Prudential Life Insurance Company (IPRU) slipped 7 per cent to Rs 553.15 on the BSE in Wednesday’s intra-day trade as the Value of New Business (VNB) of the company declined 26.44 per cent year-on-year (Y-o-Y) to Rs 776 crore in March quarter (Q4FY24).
The VNB margin dropped to 21.46 per cent as compared to 31.97 per cent in Q4FY23 on the back of a decline in sales of non-participating products after the taxation on higher ticket size policies.
At 09:29 am, the stock was trading 4 per cent lower at Rs 569.15, as compared to 0.24 per cent rise in the S&P BSE Sensex.
Meanwhile, the private life insurer recorded a 26 per cent Y-o-Y drop in net profit to Rs 173.76 crore in Q4FY24 from Rs 234.87 crore in Q4FY23, on account of increased expenses. Sequentially, the net profit dropped 23 per cent from Rs 227.47 crore in the December quarter (Q3FY24).
The net premium income of the insurer increased to Rs 2,549.84 crore, rising 9.89 per cent Y-o-Y over Rs 2,320.35 crore in Q4FY23. The Annualised Premium Equivalent (APE) of the company rose 9.54 per cent Y-o-Y to Rs 3,615 crore from Rs 3,300 crore in Q4FY23.
The decline in VNB margins was due to change in operating assumption which was primarily on account of higher operating expenses.
The company expects commissions to be stable, but operating leverage will be invested back into the business. The new product with a new commission structure does not have a low VNB margin. Currently, the company is not changing the pricing of the product.
For financial year 2025 (FY25), the management said business growth is expected to be ahead of the industry, and VNB growth is likely to be in line with business growth. Business growth will be primarily driven by proprietary channels of Agency and Direct, which have delivered better growth than the company level. If the product mix stays stable, VNB margin would be similar. IPRU delivered a weaker-than-expected performance in Q4.
Lower product-level margin remains a concern over the medium term. However, premium growth delivery would be key for valuation re-rating. While the business from the ICICI Bank channel has settled at 12-15 per cent of the overall APE, strong growth in proprietary channels is expected to sustain, given the investments made over the past couple of years, Motilal Oswal Financial Services (MOFSL) said in the result update.
Considering the Q4 performance, domestic brokerage Motilal Oswal has trimmed its estimates for APE and VNB margin for FY25 and FY26. It expects IPRU to deliver an 18 per cent compound annual growth rate (CAGR) in VNB over FY 24-26. Going ahead, the company’s ability to sustain strong premium growth and VNB margins will be vital for re-rating of the stock, it added.
The article originally appeared on Business Standard.
