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Buy ICICI Prudential Life Insurance Ltd For Target Rs.836

Sluggishness in retail protection business is a temporary phenomenon

Result Highlights

* VNB margin: Calculated VNB margin shrunk as much as 332bps QoQ to 26% primarily due to sluggishness in retail protection

* VNB growth: VNB growth was healthy at 43.9%/28.4% QoQ/YoY as IPRU remained acutely focused on overall VNB growth as opposed VNB margin

* APE growth: New business APE growth was strong at 62.2%/34.9% QoQ/YoY driven by linked business, non-linked savings and annuities

* Expense control: Expense ratio declined 288 bps QoQ but rose 131 bps YoY to 12.5% as opex ratio declined 336 bps QoQ but rose 81 bps YoY

* Persistency: 37th month ratio improved 100 bps/450 bps QoQ/YoY to 65.7% whereas 61st month ratio declined 260 bps QoQ but rose 740 bps YoY to 52.0%

Our view – Sluggishness in retail protection business is a temporary phenomenon

The sluggishness in retail protection continued on account of changes in guidelines and continued reluctance of potential customers to carry out medical testing: The company is already seeing signs of improvement in protection business on sequential basis. Within the protection basket, the company is focusing on group term life and credit life products.

The share of annuity products in new business received premium has risen to 20.1% in 1HFY22 compared with 15.2% in 1HFY21 due to a 95% YoY rise: IPRU has become one of the largest pension and annuity providers with pension fund AUM having risen 74% YoY to Rs 97.5bn. The market share for IPRU in private sector pension fund AUM stands at 15.7%.

IPRU continues to invest in all channels and is seeing good growth in agency, direct channel including proprietary sales and online channel: It is difficult to say when IPRU will get the next big banca partner but the company continues to add smaller corporate agents. 50 corporate agents have been added in the first 6 months of the year.

We maintain ‘Buy’ rating on IPRU with a revised price target of Rs 836: We value IPRU at 3.2x FY23 P/EV for an FY22E/23E/24E RoEV profile of 14.3/16.8/17.2%

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