RESULTS REVIEW 3QFY18 22 JAN 2018

ICICI Prudential Life

BUY
INDUSTRY INSURANCE Margin Surprises
CMP (as on 19 Jan 2018) Rs 430 ICICI Pru Life’s 3QFY18 was a strong beat on margins. benefits from financialisation of savings and offers
Target Price Rs 480 Better cost management, operating efficiency along higher VNB growth due to margin expansion. We
Nifty 10,895 with higher product margin on new ULIP products maintain BUY with a TP of Rs 480 (FY20 EV+ 26x
drove its 9MFY18 margin to 13.7% (9MFY17 – 9.4%). FY20E VNB).
Sensex 35,512
APE growth for the quarter was subdued on higher Highlights of the quarter
KEY STOCK DATA base at 8.7%.  Mgt highlighted increase in margin for 9MFY18 to
Bloomberg IPRU IN New Business and Renewal Business premium sustain above 13.7%; Cost to Premium ratio is lower at
No. of Shares (mn) 1,435 increased by 10.5% and 24.4% YoY respectively. The 14% for 9MFY18 compared to 15.1% for 9MFY17
MCap (Rs bn) / ($ mn) 617/9,675 growth was lower than expected due to flat growth highlighting cost efficiency on strong growth.
6m avg traded value (Rs mn) 506
in Dec’17 premium collection due to higher base  Contribution of ULIP was 84.9% compared to 84.1% in
month. Savings and Protection APE grew 7.9% and FY17.
STOCK PERFORMANCE (%) 33.3% respectively during the quarter. The share of  13th month persistency improved to 86.7% from
52 Week high / low Rs 507/336 protection improved 74bps YoY to 4%. Strong 85.7%(FY17).
3M 6M 12M improvement in margin resulted in VNB increasing by  Share of direct channel in the individual APE stood at
Absolute (%) 8.8 (9.1) 23.5
82.2% for 9MFY18 to Rs 7.7bn. 14.5% in 3Q compared to 12% in FY17.
Relative (%) (0.8) (20.3) (6.5) PAT for the quarter was almost flat at Rs 4.5bn due  AUM increased 5.9% QoQ to Rs 1.4tn with 48% Equity
to high business strain. We upgrade our margin mix.
SHAREHOLDING PATTERN (%)
assumption resulting in VNB increasing by 6.1/3.1%  Near-term outlook: Premium growth should be
Promoters 80.7 for FY18/19 though we have lowered APE growth moderate due to higher base. We expect APE growth
FIs & Local MFs 3.5 forecast. We continue to like ICICI Pru Life as it to be at 11.9% in 4Q lower than industry.
FPIs 5.8 Business Summary
Public & Others 9.0 (Rs bn) 3QFY18 3QFY17 YoY (%) 2QFY18 QoQ (%) FY17 FY18E FY19E FY20E
Source : BSE NBP 23.17 20.97 10.5 22.8 1.6 78.6 92.3 111.3 132.3
APE 20.05 18.45 8.7 18.7 7.2 65.0 80.0 97.5 116.9
VNB NM NM NM NM NM 6.7 11.0 14.1 17.7
VNB Margin (%) 13.7# 9.4# 430bps 13.7# 0bps 10.3 13.8 14.5 15.2
EV 161.8 178.9 198.8 222.9
MCap/EV (x) 3.81 3.45 3.10 2.77
Vishal Rampuria P/Bv (x) 10.06 8.83 7.70 6.76
vishal.rampuria@hdfcsec.com ROEV 20.6 15.8 16.8 17.7
Source: Company, HDFC sec Inst Research
+91-22-6171-7325 # Refers to 9MFY17 and 9MFY18 margin respectively
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

Concall highlights
Cost Efficiency and margin improvement
 During the quarter, based on actual 9MFY18 cost
experience and mgt estimate for 4Q, VNB margin for
New ULIPs product launched in
the 9MFY18 was upgraded to 13.7%. During 1QFY18
Jun’18, have slightly higher
and 2QFY18, the margin estimate was 10.7% and
charges along with longer
12.6% respectively. As such, 13.7% relates for the
tenure
entire 9MFY18 period based on change in cost
assumption.
 The margin expansion from 2Q to 3Q is attributable
to strong growth (~25% in 9MFY18) resulting in
higher operating leverage along with re-alignment of
cost on promotions and adv. from fixed to complete
variable at the channel partners level.
 The new ULIPs have higher net charges which is also
supporting higher VNB margins.
 Mgt expects 13.7% as the base margin going
forward.
 Persistency continues to show uptrend across most
buckets.
ICICI PRUDENTIAL LIFE: RESULTS REVIEW 3QFY18
 Actual cost and persistency related change in
assumption for the policies underwritten in the
current period would be reported in 4Q for the full
year.
Business Outlook
 Slow growth in APE at 8.7% during the quarter is
attributed to high base; ln 3QFY17, it grew by ~45%.
 Given higher base of last year, it expects slower
growth. We expect growth of 11.9% in 4Q.
 Protection is expected to grow faster than rest of
the portfolio.
Others
 Product committee constituted by IRDA has
recommended slashing in surrender charges for
traditional savings products also. Traditional
products contribute 12% to product mix and margins
would get adversely affected.
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 ICICI PRUDENTIAL LIFE: RESULTS REVIEW 3QFY18

Five Quarters At A Glance

YoY(%) QoQ(%)
(Rs Bn) 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18
Growth Growth
Premium Earned 57.46 75.79 48.85 65.99 68.56 19.3 3.9
Premium on re-insurance 0.48 0.53 0.65 0.59 0.61 27.1 3.4
Net premium earned 56.98 75.26 48.2 65.4 67.95 19.3 3.9
Investment income (5.01) 67.48 36.19 29.83 67.6 -1449.3 126.6
Other income 0.16 0.42 0.16 0.17 0.18 12.5 5.9
Total Income 52.13 143.16 84.55 95.4 135.73 160.4 42.3
Commission Paid 2.00 2.51 2.17 3.63 3.77 88.5 3.9
Expenses 6.70 8.35 5.3 6.46 6.83 1.9 5.7
Tax on policyholder funds 0.23 0.19 0.26 0.23 0.24 4.3 4.3
claim/benefits paid 29.98 49.02 39.69 40.71 46.85 56.3 15.1
change in actuarial liability 8.35 78.79 32.85 39.88 73.23 777.0 83.6
Total outgo 47.26 138.86 80.27 90.91 130.92 177.0 44.0
Given strong growth in New Business
PBT 4.87 4.3 4.28 4.49 4.81 -1.2 7.1
Premium, Business Strain has remained
Tax on 0.37 0.22 0.22 0.28 0.29 -21.6 3.6
PAT 4.50 4.08 4.06 4.21 4.52 0.4 7.4 high resulting in flattish profit

New Business Premium 20.97 25.60 20.34 22.80 23.17 10.5 1.6

Total APE 18.45 21.67 17.04 18.70 20.05 8.7 7.2

-Savings APE 17.85 20.80 16.27 17.96 19.26 7.9 7
-Protection APE 0.60 0.86 0.77 0.73 0.8 33.3 10
Savings APE Share (%) 96.7% 96.0% 95.5% 96.1% 96.0% -74bps -9bps
Protection APE Share (%) 3.3% 4.0% 4.5% 3.9% 4.0% 74bps 9bps Cost to total premium for 9MFY18 is
13.1% compared to 13.6% for 9MFY17
Cost to Total Premium (%) 13.3 14.3 13.1 13.1 13.2 10bps -10bps and 14.1% for FY17

VNB Margin (%)# 9.4 10.1 13.7 13.7 13.7 260bps NA

AUM Rs (bn) 1,136.11 1229.19 1265.91 1305.91 1383.04 21.7 5.9

Equity Mix (%) 44.6 46.8 46.5 46.0 48.0 120bps 200bps
ICICI Pru Life remains focussed on ULIP;
Debt Mix (%) 55.4 53.2 53.5 54.0 52.0 -120bps -200bps
Linked (%) 71.7 71.5 71.3 70.7 71.0 -50bps 30 bps
61% of ULIP is Equity
Non-Linked (%) 28.3 28.5 28.7 29.3 29.0 50 bps -30 bps
Source: Company, HDFC sec Inst Research
#Refers to 9MFY17 and 9MFY18 margin; for 4Q is refers to FY17 margin

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 ICICI PRUDENTIAL LIFE: RESULTS REVIEW 3QFY18

APE trend Product Mix On APE

APE growth was muted at 8.7% Total APE Growth - RHS -ULIP -PAR -Non-PAR -Group Protection
due to high base; in 3QFY17 is 70 3000% 100%
had grown ~45% 90%
60 2500% 80%
50 70%
2000%
60%
40
1500% 50%
30 40%
1000% 30%
20
20%
10 500%
10%
0 0% 0%
Product mix is dominated by

FY16

FY17

1QFY18

2QFY18

3QFY18
FY16

FY17

1QFY18

2QFY18

3QFY18
ULIP which is the focuss for the
company
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

VNB Trend AUM Mix

VNB VNB Margin - RHS Equity Debt
9.00 16.0% 100%
Margin has seen a strong 90%
8.00 14.0%
improvement on higher 80%
7.00 12.0%
operating scale, change in cost 70%
6.00
structure(complete variable) and 10.0% 60%
5.00
better margin product 8.0% 50%
4.00 40%
6.0%
3.00 30%
2.00 4.0% 20%
1.00 2.0% 10%
AUM has high share of Equity
0.00 0.0% 0%
compared to other players and

FY16

FY17

1QFY18

2QFY18

3QFY18
FY16

FY17

9MFY18

remain susceptible to equity

market volatility
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

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 ICICI PRUDENTIAL LIFE: RESULTS REVIEW 3QFY18

Persistency Trend Channel Mix On APE

FY15 FY16 FY17 8MFY18 Bancassurance Agency Direct Corporate Agents Group
Persistency has been improving 100.0% 100%
across all buckets 90.0%
80.0% 80%
70.0%
60.0% 60%

Share of direct channel has 50.0%

40.0% 40%
improved to 14.5%
30.0%
20%
20.0%
10.0%
0%
0.0%

FY16

FY17

1QFY18

2QFY18

3QFY18
13th 25th 37th 49th 61st
month month month month month

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Change In Estimates
FY18E FY19E FY20E
We have lowered our APE Rs bn
New Old Change(%) New Old Change(%) New Old Change(%)
growth assumptions given
slower growth in the quarter; APE 80.04 88.29 -9.34 97.51 110.18 -11.50 116.89 132.10 -11.51
However, we have increased VNB 11.01 10.38 6.09 14.14 13.72 3.07 17.71 16.84 5.14
VNB margin upwards VNB Margin (%) 13.8 11.8 2pp 14.5 12.5 2.1pp 15.2 12.8 2.4pp
Embedded Value 178.93 178.86 0.04 198.78 198.87 -0.04 222.89 222.58 0.14
Source: HDFC sec Inst Research

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 ICICI PRUDENTIAL LIFE: RESULTS REVIEW 3QFY18

Peer Comparison
CMP VNB EV P/EV (x) VNB Multiple (x) APE GROWTH (%) VNB Margin (%)
Rs Bn M.Cap Reco TP
(Rs) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
SBI Life 710 710 BUY 810 14.3 18.1 22.5 195.6 231.9 275.5 3.63 3.06 2.58 36.0 26.5 19.3 35.7 25.6 23.7 16.0 16.1 16.2
ICICI Pru Life 617 430 BUY 480 11.0 14.1 17.7 178.9 198.8 222.9 3.45 3.10 2.77 39.8 29.6 22.3 23.2 21.8 19.9 13.8 14.5 15.2
Max Financial 147 548 BUY 665 6.1* 7.3* 8.7* 74.4* 84.1* 95.8* 2.82 2.50 2.19 22.2 17.2 13.1 17.9 19.0 19.0 18.9 19.0 19.0
HDFC Life# 966 483 NR NR 12.5 15.8 19.9 146.8 175.1 209.9 6.58 5.52 4.60 65.5 49.9 37.7 37.0 22.0 19.0 22.4 23.2 24.7
Source: Companies, HDFC Sec Inst Research, * For Max Life, #Consensus Estimates for HDFC Life

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 ICICI PRUDENTIAL LIFE: RESULTS REVIEW 3QFY18

Policyholder AC Shareholders AC
(Rs mn) FY17 FY18E FY19E FY20E (Rs mn) FY17 FY18E FY19E FY20E
Total Premium earned 221,552 272,074 322,626 385,919 Transfer from policyholders' a/c 11,315 12,044 14,769 15,625
Income from investments and Investment income 6,932 6,641 7,569 8,610
150,360 114,371 141,747
164,882 other income Total income 18,248 18,685 22,339 24,235
Transfer from shareholders AC 18 - - - Expenses 380 408 439 472
Total Income 371,930 386,445 464,374 550,802 Contribution to policyholders' a/c 18 - - -
Commission 7,589 9,271 11,071 13,187 Profit before tax 17,850 18,277 21,900 23,764
Operating expenses 23,572 28,181 33,098 39,208 Taxes 1,028 1,188 1,424 1,545
Provisions 4,288 4,501 4,725 4,960 PAT 16,822 17,089 20,477 22,219
Total Expenses 35,450 41,953 48,893 57,355 Source: Company, HDFC sec Inst Research
Benefits Paid 149,979 172,770 189,902 220,098
Change in valuation of liabilities 174,976 157,669 208,120 254,141
Total 324,954 330,439 398,023 474,239
Surplus 11,527 14,053 17,458 19,208
Tax 788 961 1,047 1,249
Net Surplus 10,738 13,092 16,410 17,960
Transfer to shareholders AC 11,315 12,044 14,769 15,625
Source: Company, HDFC sec Inst Research

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 ICICI PRUDENTIAL LIFE: RESULTS REVIEW 3QFY18

Key Ratios Balance Sheet

In % FY17 FY18E FY19E FY20E (Rs mn) FY17 FY18E FY19E FY20E
Premium Growth 16.6 46.2 21.4 23.0 Source
NBP Growth 16.2% 17.4% 20.5% 18.9% Share capital 14,353 14,353 14,353 14,353
APE Growth 27.2% 23.2% 21.8% 19.9% Reserve and surplus 46,996 55,541 65,779 76,888
Commissions Growth 22.4 49.5 19.4 19.1 Net worth 61,350 69,894 80,132 91,242
Opex Growth 24.8 49.2 17.4 18.5 Credit/debit balance in fair value a/c 2,731 2,731 2,731 2,731
Commissions / premium 3.4 3.4 3.4 3.4 Policyholders' a/c 1,148,941 1,306,610 1,514,730 1,768,871
Opex / premium 10.6 10.4 10.3 10.2 Funds for future appropriation 6,042 6,785 6,954 7,128
PAT Growth 1.7 3.3 19.8 8.5 Total Liabilities 1,219,063 1,386,020 1,604,548 1,869,972
RoAA 1.5 1.4 1.4 1.3 Application
RoE 30.0 28.3 27.3 25.9 Shareholders' Investments 66,403 75,690 86,098 97,381
EPS (Rs) 11.72 11.91 14.27 15.48 Policyholders' investments 270,674 307,802 356,810 416,655
BV (Rs) 42.7 48.7 55.8 63.6 Asset to cover linked liabilities 878,783 999,325 1,158,437 1,352,733
DPS (Rs) 3.8 5.0 5.9 6.4 Loans 806 806 806 806
EV (Rs mn) 161,840 178,926 198,785 222,892 Fixed assets + DTA 2,138 2,140 2,150 2,150
VNB (Rs mn) 6,660 11,007 14,141 17,711 Net current assets 259 257 247 247
EVOP (Rs mn) 22,950 25,630 30,097 35,216 Debit balance in P&L - - - -
ROEV 20.6 15.8 16.8 17.7 Total Assets 1,219,063 1,386,020 1,604,548 1,869,972
P/E (x) 36.7 36.1 30.1 27.8 Source: Company, HDFC sec Inst Research
P/ABV (x) 10.06 8.83 7.70 6.76
P/EV (x) 3.81 3.45 3.10 2.77
P/NBV (x) 68.4 39.8 29.6 22.3
Source: Company, HDFC sec Inst Research

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 ICICI PRUDENTIAL LIFE: RESULTS REVIEW 3QFY18

RECOMMENDATION HISTORY
Date CMP Reco Target
ICICI Pru Life TP
550
28-Dec-17 390 BUY 465
22-Jan-18 430 BUY 480
500
450
400
350
300
250
200 Rating Definitions
Jun-17
Jan-17

Feb-17

Jan-18
Dec-16

Nov-17

Dec-17
May-17

Aug-17

Sep-17
Mar-17

Oct-17
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Apr-17

Jul-17

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 ICICI PRUDENTIAL LIFE: RESULTS REVIEW 3QFY18

Disclosure:
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 ICICI PRUDENTIAL LIFE: RESULTS REVIEW 3QFY18

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171 7330 www.hdfcsec.com

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