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More levers to grow VNB; valuations attractive

We remain enthused with IPRU Life’s product and channel diversification strides, which has made the business considerably more robust than before. This is illustrated by the fact that the Rs21.6bn FY22 VNB mix is split between 16% by ULIPs, 43% by protection and 41% by non-linked savings. While volume growth has been volatile, product/distribution levers are available for VNB (volume and margin) growth, which should ensure >15% RoEV. Current valuation at 2.2x/1.9x FY23E/FY24E P/EV is attractive. Maintain BUY.

APE growth of near-20% in FY23E is key milestone. Management remains positive on achieving >Rs26bn VNB in FY23 based on available levers in distribution, products and margins. Retail protection can gradually improve (grew 50% YoY in Q4FY22) and there is scope for credit protection to continue expanding (+46% in FY22).

Channel diversification is a now a structural business moat. Banca/agency/ direct/partnership/ group channels registered growth of 10%/19%/23%/22%/49% YoY respectively in FY22. Share of banca has reduced from 42.3% in FY21 to 39% in FY22 while that of group has increased from 12.3% in FY21 to 15% in FY22. Share of agency/direct/partnership distribution has been largely stable at 24%/13%/9%. Among initiatives, the company added 24,607 agents in FY22. There are total ~800 partnerships with 27 banks and 198,000 advisors as of Mar’22. Company has maintained its aim to register growth from agency by ring-fencing productive agents and increasing the contribution from all partnerships. With price hikes and introduction of RoP category in protection, banca growth can also pick up in this segment. The channel diversification can be best summarised from the fact that share of parent bank in overall APE fell from 51% in FY19 to 25% in FY22.

Product mix balance now more diversified than most. In the total APE, share of savings APE has declined from 85% in FY20 to 83% in FY22 while that of protection APE has risen from 15% to 17% in the same timeframe. Within savings APE, share of linked savings has declined from 65% in FY20 to 48% in FY22, while that of non-linked savings increased from 17% in FY20 to 27% in FY22. Within protection, retail protection mix saw a sharp decline from 8%/9% in FY20/FY21 to 5% in FY22, and group protection mix improved from 7% to 12% during the same period. Share mix of credit life in overall protection APE has increased from 23% in FY21 to 27% in FY22 driven by new partners. The product diversification can be best summarised by the fact that >25% of FY22 APE has been generated from products launched in the past two years. Ticket size for both ULIPs and non-linked savings increased for IPRU in FY22.

Maintain BUY. We factor-in VNB margins of 28%/29% with APE growth of 20%/15% for FY23E/FY24E respectively. This result in an embedded value (EV) of Rs410bn by FY24E adjusted for variances (we factor rising interest rates impact). As we rollover our estimates to FY24, our target price works out to Rs720 (unchanged) by assigning 20x multiple to FY24 VNB of Rs31bn (earlier 25x). At our TP, the stock will trade at 2.52x FY24E P/EV. At CMP, it is trading at 1.9x FY24E P/EV.

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