ICICI Pru sheds 2% as narrow margins, revenue decline weigh: Should you buy, hold, or sell?

Shares of ICICI Prudential Life fell more than 2 percent on October 18 after the insurer reported mixed earnings for Q2FY24 with a rise in profit but a decline in VNB margins and revenue.

While most brokerages maintained their ‘buy’ rating on the stock, they slashed the target price on the ICICI Prudential stock, given the 298 basis points on-year decline in margins to to 28.8 percent.

Shares of the insurer were trading at Rs 519.60 on the National Stock Exchange (NSE) at 9:22am on October 18.

ICICI Prudential’s net profit jumped 23 percent on-year to Rs 244 crore. However, its total income saw a 2.4 percent fall to Rs 17,526 crore. According to analysts, the private sector insurer’s total income fell due to a fall in investment income, while high operation costs led to a decline in VNB margins.

Brokerages cut target price

The company’s Q2 showed a change in product mix and pressure on the group term insurance business, noted HSBC. According to the brokerage, there has been a slowdown in group term life business.

“While FY24 will remain challenging, growth should normalise thereafter,” HSBC said, putting a ‘buy’ call on the ICICI Prudential stock. However, it cut the target price to Rs 670 per share from Rs 710 earlier.

Also Read | ICICI Prudential Q2 results: Net profit rises 22 % to Rs 244 crore on new businesses

Morgan Stanley maintained its ‘overweight’ rating on ICICI Prudential Life but cut the target price to Rs 665 from Rs 685 earlier. The net premium income earned by ICICI Prudential in Q2 rallied 4.6 percent on-year to Rs 10,022 crore. Its assets under management (AUM) grew 11.3 percent to Rs 2,71,903 crore. Strong retail protection growth was positive for the insurance company. The focus will now be on APE (annualised premium equivalent) growth in non-ICICI Bank channels, analysts said.

Domestic brokerage Motilal Oswal remained bullish on the stock as it reitrerated its ‘buy’ rating with a target price of Rs 600. The growth in the non-ICICI Bank channel and agency channel is likely to pick up in the second half of FY 24 as the base effect kicks in. The increase in agent recruitment and the strong pace of new partnership additions will likely aid premium growth, said.

“The strategy of approaching customers with a wider product bouquet through all channels will also boost premium growth,” said Motilal Oswal in its report.

Nuvama cuts VNB estimates

Given the recent setback in ICICI Prudential’s growth and margin, Nuvama Institutional Equities has scaled down its FY24/25 VNB estimates by 5.6 percent/6.7 percent. “We like ICICI Prudential’s re-engineered business model with a focus on VNB growth along with lower dependence on any particular channel,” the brokerage said, putting a ‘hold’ tag on the stock with a target price of Rs 565.

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