ICICI Prudential has growth cover in place
Subscribe to enjoy similar stories. In July, ICICI Prudential Life Insurance Co. Ltd shares finally crossed their previous all-time high of ₹724.30 seen almost three years ago on 8 September 2021.
Despite the growth in embedded value at a compound annual growth rate (CAGR) of about 16% over the last two years to FY24, the company’s shares have faced valuation de-rating. Its price to embedded value multiple came down to 2.2x based on FY25 brokerages’ estimates from close to 3.2x for FY22. Embedded value or the modified form of book value is a total of adjusted book value, and the present value of the future profit locked in existing policies.
The valuation de-rating can be attributed to the disappointment over the trend in two important financial parameters. Annualized premium equivalent (APE) or total revenue for the company grew by just 4.7% year-on-year in FY24. To add to the woes, economic profit margin, also known as the value of new business (VNB) margin fell to 24.6% in FY24 from 32% a year ago, as the share of ULIP, a less profitable product, rose in overall APE to 43% from 36%.
The renewed interest in the ICICI Prudential stock is mainly owing to the faster APE growth of 34.4% in the June quarter (Q1FY25), which has rekindled hopes of investors. Growth was led primarily by a 78% jump in ULIP sales that now accounts for 51% of APE. Though it has dragged the VNB margin by 600 basis points year-on-year to 24%, similar to last financial year’s margin, indicating that further downside to the margin could be limited.
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