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Favourable mix lifts margins; growth outlook cautious

Q2 APE growth remained healthy at 15.5% YoY led by sustained traction in annuity and protection. ULIP growth was subdued amid market volatility, while non-linked savings saw a recovery with NPAR contributing 40% of the mix. We build APE growth of 9%/8% for FY27E/FY28E despite a resilient H1 performance, factoring in a high base in H2FY26 and the potential impact of the commission consultation paper, respectively. VNB margin improved 100bps YoY to 25.5% in Q2FY27, supported by a favourable product mix and operating efficiencies. The shift towards margin-accretive products, along with cost optimisation is expected to support sustained margin improvement. We raise our FY27E/FY28E VNB margin estimates by 20/30bps. We roll-forward our valuation to FY29E and value IPRU using the appraisal value framework at 1.4x FY29E P/EV (vs. 1.5x earlier), arriving at a TP of INR725. Valuation remains undemanding. Reiterate BUY.

Annuity and protection drive growth; base effect to weigh on H2: IPRU reported sustained APE growth of 15.5% YoY to INR28.0bn in Q2FY27 driven by strong traction in annuity (+65% YoY) and protection (+33% YoY). While protection continues to benefit from GST-led tailwinds, growth is expected to moderate in H2FY27 due to high base. However, management aims to sustain and build on current growth momentum. ULIP growth remained subdued at 6.7% YoY amid volatile market conditions. Non-linked segment is seeing recovery with NPAR mix increasing and now contributing 40% vs 60% from PAR. The growth for credit life was in-line with protection segment in Q2. Management highlighted annuity and protection to remain key growth drivers for the company. Linked / Non-Linked / Annuity / Group / Protection comprise 45% / 19% / 7% / 9% / 20% of APE in 2QFY27. We expect the high base in H2FY26 to weigh on FY27 growth, while uncertainty around the commission consultation paper could constrain FY28E growth. Accordingly, we build in APE growth of 9%/8% for FY27E/FY28E, respectively.

Robust VNB growth with sustainable margin expansion:

Q2FY27 VNB grew by 20.3% YoY to INR7.1bn while Q2 VNB margin improved by ~100bps YoY to 25.5%. VNB margin for H1FY27 stood at 26% vs 24.5% YoY led by favorable shift in product mix towards annuity/ protection and higher operating efficiencies. Management reiterated its focus on growing absolute VNB by improving profitability across each segment through longer tenure, higher sum assured and increased rider attachments. We raise our FY27E VNB margin estimates by 20/30bps for FY27/FY28E factoring in strong performance of margin accretive products in H1FY27 and cost optimization initiatives.

Cost ratios improves; solvency remains strong: Cost/ Total premium excl. GST improved by 30 bps YoY to 18.3% in H1FY27 driven by productivity enhancements and disciplined cost management. Persistency trends remained healthy with 13M/61M improving on a sequential basis to 84.5%/62.5% respectively. The softness in 25M persistency from 83.1% to 76.2% reflects prior period surrenders rather than any fresh deterioration. AUM growth stood at ~2% YoY to INR3,289.6bn while solvency ratio stood at 229.9%, sufficiently above the regulatory threshold of 150%.

Distribution grows across channels: Agency/ Direct/ Banca/ Partnership Distribution/ Group contributed 23%/14%/27%/15%/21% to overall APE in Q2FY27. Agency grew by 6% YoY, supported by the ongoing micromarket led branch strategy, product mix optimisation and technology-led productivity gains. Management aims for agency growth to outpace overall company growth over the medium term. Direct channel remains focused on scaling online business through differentiated customer offerings and deepening the NRI segment via GIFT City. Banca grew 4% YoY, with ICICI Bank contributing nearly half of the channel’s business, primarily through ULIP and protection products at a monthly run-rate of INR1-1.2bn. Partnership distribution grew 38% YoY, with management focused on strengthening existing partnerships and building new alliances.

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