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Strong, in-line quarter

IPRU reported a strong VNB of INR 6.2bn in 3Q, in-line JMFe, +19% YoY. Margin was a healthy 24.4%, flat QoQ, +320bps YoY. Growth was soft in December; hence, reported APE was below our estimates. However, it was decent at 10% YoY, after 3 quarters of decline. We expect strong, consistent growth for the company in the near term – 23% in 4Q and 14% over FY27 and FY28e. We build in margin of 24.5% for FY26E, largely in line with 9M figures, and expect it to improve by 50bps each over the next 2 years. This implies consistent 16% VNB compounding, for which current valuations of 1.4x Mar’28 EV look undemanding. We do not materially change our estimates. We reiterate BUY with an unchanged target price of INR 880.

* APE grew 4% after 3 quarters of contraction, expect growth momentum to sustain: The insurer recorded 10% growth in individual APE in 3QFY26, although it contracted by 2% YTD. Total APE grew by 4% YoY, after 3 quarters of YoY contraction. These numbers were already reported. 3Q growth missed our estimates due to a weak December. Hence, we have lowered our FY26E individual APE growth forecast by ~1ppt to 6% YoY, reflecting 2-year CAGR of 7%. Group APE grew strongly (+20%) in the first half, but contracted by 50% in 3Q on a healthy base. We expect group business to return to growth in 4Q.

* VNB margin strong and in line at 24.4%, flat QoQ despite GST 2.0 reforms: VNB margin was stable sequentially in 3Q at 24.4%, in line with JMFe. This was largely driven by 41% growth in retail protection, along with higher product level margins, led by favourable yield curve movements, higher rider attachment and higher sum assured on ULIPs. Within non-linked savings, the share of non-par products rose to ~40%. Group protection growth was weaker, at only 5%. However, credit life (and the MFI segment within it) has returned to YoY growth, which should support margins. Annuity APE dipped by 50% YoY; we expect this segment to return to growth in 4Q as the base normalises. Despite challenges posed by GST 2.0 and a modest INR 110mn impact of the new Wage Code, the insurer has demonstrated resilience, prompting us to slightly raise our margin estimate to 24.5% for FY26E. We expect margin to gradually improve by 50bps each to 25.5% by FY28E.

* Valuations and view – expect a gradual rerating with consistent VNB growth: At current valuations, the stock trades at attractive valuations of 1.8x/1.6x/1.4x FY26e/FY27e/FY28e EV, translating to 15x/13x/11x FY26/FY27e/FY28e EVOP. It is currently trading at a significant discount to peers like HDFC Life and SBI Life, with valuations more than one standard deviation below its historical average since listing. We expect this discount to narrow as the insurer delivers 14%/16%/15% compounding in APE/VNB/EV over FY26-FY28E. We maintain IPRU as our top pick in the insurance space. We reiterate BUY with an unchanged target price of INR 880.

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