Should ICICI Prudential Life Insurance Company Limited’s (NSE:ICICIPRULI) Recent Earnings Decline Worry You?

When ICICI Prudential Life Insurance Company Limited (NSE:ICICIPRULI) announced its most recent earnings (31 December 2018), I did two things: looked at its past earnings track record, then look at what is happening in the industry. Understanding how ICICI Prudential Life Insurance performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see ICICIPRULI has performed.

See our latest analysis for ICICI Prudential Life Insurance

Was ICICIPRULI’s recent earnings decline worse than the long-term trend and the industry?

ICICIPRULI’s trailing twelve-month earnings (from 31 December 2018) of ₹15b has declined by -8.4% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 1.2%, indicating the rate at which ICICIPRULI is growing has slowed down. What could be happening here? Well, let’s look at what’s occurring with margins and whether the rest of the industry is facing the same headwind.

NSEI:ICICIPRULI Income Statement, March 13th 2019
NSEI:ICICIPRULI Income Statement, March 13th 2019

In terms of returns from investment, ICICI Prudential Life Insurance has invested its equity funds well leading to a 22% return on equity (ROE), above the sensible minimum of 20%. However, its return on assets (ROA) of 1.0% is below the IN Insurance industry of 2.8%, indicating ICICI Prudential Life Insurance’s are utilized less efficiently. Furthermore, its return on capital (ROC), which also accounts for ICICI Prudential Life Insurance’s debt level, has declined over the past 3 years from 1.7% to 1.1%.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Typically companies that endure an extended period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the recent industry expansion and disruption. I suggest you continue to research ICICI Prudential Life Insurance to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for ICICIPRULI’s future growth? Take a look at our free research report of analyst consensus for ICICIPRULI’s outlook.
  2. Financial Health: Are ICICIPRULI’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2018. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.