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IPRU poised to see renewed interest in retail protection

Result Highlights

VNB margin: Calculated VNB margin increased as much as 302bps QoQ to 29.7% largely due to rise in share of overall protection and non-linked products

VNB growth: VNB growth was 31.1% YoY and 50.5% QoQ, aided by strong sequential growth in APE and improvement in VNB margin

APE growth: New business APE growth was 4% YoY and 35.2% QoQ, with all businesses displaying healthy sequential growth

Expense control: Expense ratio rose 246/445 bps QoQ/YoY as opex ratio rose 220/425 bps QoQ/YoY

Persistency: 13th month, 37th month and 61st month persistency ratio improved sequentially by 370bps, 230bps and 280bps respectively

Our view – IPRU poised to see renewed interest in retail protection

Group term continues to pick up the slack for now, even as management guides for a bounce-back in retail protection in FY23: Overall protection APE rose 32.8% YoY in 4QFY22 to Rs 4.57bn and occupied a share of 17.5% in total APE. Protection APE growth was driven by group term business. In 4QFY22, share of the newly launched ROP product was 17% in retail protection APE. Management expects a revival in retail protection business as under-writing norms have now been calibrated and some of the supply-side issues (reluctance of customers to get medically tested) would also get addressed.

The target of doubling FY19 VNB by FY23 stays intact, implying a required VNB growth of 22.5% in FY23: In FY23, management expects retail protection to play a key role in both topline as well as margin enhancement. Management does not view 28% VNB margin as a level that cannot be crossed. At the product level, there has been no dilution of VNB margin for any sub-segment within Protection in FY22

Overall Embedded Value has grown at 8.7% YoY in FY22 to Rs 316.25bn, the growth being held back by de-growth in Adjusted Networth: Value of In-Force rose 18.8% YoY to Rs 232.66bn. Mortality and morbidity variance contributed to a decline of Rs 11.87bn. RoEV amounted to 11.0% for FY22. Excluding mortality and morbidity variance, it would have amounted to 15.0%.

We maintain ‘Buy’ rating on IPRU with a revised price target of Rs 787: We value IPRU at 3.1x FY23 P/EV for an FY23E/24E RoEV profile of 17.3/17.8%.

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