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IPRU stagnating at lower RoEV trajectory

Our view –

Margin decline tempers benefit from growth traction VNB margin – Calculated VNB margin declined on sequential basis on the back of product mix change and pricing issues: The VNB margin for 2QFY25 was 23.4%, down -64 bps QoQ and -458bps YoY. While the share of linked business was steady, the share of Par has gone up sequentially. Secondly, in 2Q, the company was not able to change the pricing on Non-Par and Par products as require. While the yield curve had changed, the company was preoccupied with other product changes (presumably pertaining to surrender rule changes). In terms of commission payouts, the company has been talking to distribution partners and most are understanding of the situation (in terms of surrender rule changes). Clawback of commission, deferred commission and reduction of commission are all on the table to protect customer interest. The impact on company is also mitigated by offering longer tenure products, higher sum-assured products and increasing rider attachments.

APE growth –

Growth performance continue to be positive with linked business and annuities driving traction: Overall APE in 2Q grew by 21.4% YoY to Rs 25.04bn. Within this, retail APE in 2Q grew by 26.2% YoY to Rs 21.61 bn whereas group APE in 2Q degrew by -2.3% YoY to Rs 3.43 bn. Linked product APE was up 40.0% YoY in 2Q and contributed 51.8% to APE. Annuity business APE grew 73.0% YoY in 2Q and contributed 8.7% to APE. However, Non-linked savings APE (Par + Non-Par) de-grew - 10.2% YoY in 2Q and contributed 18.1% to APE. The partnership distribution channel growth was flat YoY in 1H and contributed 10.6% to APE. The slowdown in partnership distribution channel is temporary and is largely due to the channel prioritizing nonlinked products but with the market demanding linked products. We rate IPRU a relatively cautious ‘ADD’ with a price target of Rs 850: We value IPRU at 2.2x FY26 P/EV for an FY25/26/27E RoEV profile of 15.4/15.4/15.3%. (See Comprehensive con call takeaways on page 2 for significant incremental colour.)

Other Highlights

(See “Our View” above for elaboration and insight)

* VNB growth: VNB grew 24.2%/1.6% QoQ/YoY, where the sequential growth was aided by growth in APE

* Expense control: Expense ratio fell/rose -392/211bps QoQ/YoY as opex ratio fell -339/-169bps QoQ/YoY and comm. ratio fell/rose -53/379bps QoQ/YoY

* Persistency: 13th month, 37th month and 61st month persistency ratio improved/declined sequentially by 90bps, 90bps and -170bps respectively

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