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Robust margin drives VNB beat; persistency trend improves

Reiterates guidance to double the FY19 VNB by FY23

IPRU Life posted 4% YoY growth in new business APE over 4QFY22 propelled by a healthy 33% YoY growth in Protection segment while Nonlinked sales increased 4% YoY and were in line with the overall growth rate. ULIP business reported a marginal 1% decline, adversely affected by volatile capital markets.

VNB grew 31% YoY to INR7.8b (21% beat). This was primarily driven by healthy VNB margin of 29.7% in 4QFY22 and 28.0% for FY22.

IPRU remains on track to achieve its stated objective of doubling the FY19 VNB by FY23. With adequate growth and margin levers in place, we estimate IPRU to meet its guidance that entails ~23% VNB growth in FY23.

We further estimate IPRU to deliver 23% CAGR in VNB over FY22-24, largely fueled by healthy premium growth due to new partnerships and product segments coupled with an improving margin trajectory, enabling operating RoEV at 16.9% in FY24. Maintain BUY.

Margin posts impressive improvement aided by improved product mix

Net premium income declined 4% YoY in 4QFY22 due to a drop in new business premium and renewal premium. Shareholder’s PAT, however, grew 190% YoY to INR1.85b in 4QFY22 driven by lower claims and reserving.

Share of protection in overall mix improved to 17.5% in 4QFY22 from 13.7% in 4QFY21, driven by a healthy 33% growth. Decline in Retail protection was arrested on a sequential basis while improved credit activity coupled with price hike to reflect the hike in reinsurance rate aided the overall growth in credit life business.

Implied VNB margin of protection declined to 70% in FY22 from 83% in FY21. This was primarily due to a lower share of retail protection – the highest margin sub-segment, led by a cautious approach to underwrite retail policies in a pandemic environment, besides softer demand.  Annuity witnessed a 31% growth in APE for FY22 and now forms 3.9% of overall mix. With multiple products, IPRU remains committed to building this segment further as it sees a multi-decade opportunity.

ULIPs posted a decline of 1% in APE in 4QFY22. As a result, the share of ULIPs in mix declined to 45% from 47% in 4QFY21. Non-linked savings at 35% of overall business remained stable in FY22.

On the distribution side, the share of banca channel in total APE declined to 38% in 4QFY22 from 43% in 4QFY21. While sales at new bank partnerships are doing well, sales from ICICI Bank continue to drag the overall banca growth. IPRU, however, is optimistic of a turnaround in sales at ICICI Bank as the momentum in retail protection is improving.

13th month persistency jumped 90bp to 85.7% while 61st month persistency declined 390bp over FY21 levels. The company guided for an overall improvement in persistency levels, going forward.

IPRU remained focused on scaling up the agency and direct channels. It added close to 25K agents during FY22. The company is also investing significant amount of bandwidth in building the direct channel.

Despite a mere 4% growth in APE, VNB grew 31% YoY to INR7.8b in 4QFY22 led by higher share of high-margin products such as protection and annuity. With this growth, we expect IPRU to achieve its objective of doubling the FY19 VNB by FY23.

Highlights from the management commentary

Management is satisfied with the performance in 4Ps of business strategy. IPRU should achieve its objective of doubling the FY19 absolute VNB by FY23. It has adequate margin and growth levers to achieve the same. Beyond FY23, the longterm objective is to grow higher than the industry VNB growth rate.

Management is of the opinion that sales at ICICI Bank should see a turnaround from hereon as willingness to underwrite retail protection is back. With focus on annuity and protection, this should help the bank sales to remain strong.

Focus remains on scaling up the agency and direct channels by recruiting and training agents and through continuous investment in boosting online channel.

Healthy growth in product mix and APE to boost VNB growth; retain BUY

IPRU has maintained a steady traction in VNB growth led by healthy product mix and APE growth. The share of banca (excluding ICICI Bank) has increased to 14% in FY22 from 4% in FY19, thus supporting the growth and diversification in distribution mix. The increase in agent recruitment and strong pace of adding new partnerships will continue to support premium growth. The idea of approaching customers with a wider product bouquet through all channels will further boost premium growth. We expect VNB margin to improve marginally and project IPRU to deliver 21% and 23% CAGR in new business APE and VNB over FY22-24E, respectively, thus enabling an operating RoEV of 16.9% in FY24. We maintain our BUY rating with a TP of INR675 (premised on 2.3x FY24E EV).

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