Healthy margin supports bottom line
SBI Life Insurance Company Limited, is a joint venture between SBI and BNP Paribas formed in 2001, which offers individual and group insurance plans, including traditional and unit linked plans. Its products cover life, health, annuity, pension and variable insurance.
* In Q1FY20, Gross Written Premium (GWP) grew 14.2% YoY, on the back of Renewal Premium. The New Business Premium (NBP) however declined 2.9% YoY, as premiums slid on individual (-28.4% YoY) and protection businesses (-34.1% YoY) front.
* Annualized Premium Equivalent (APE) witnessed a decline across channels, dropping 32.1% YoY on overall basis.
* PAT went up 5.1% YoY, owing to rise in Investment income (+188.3% YoY) and lower total expenses (-10.6% YoY).
* Company’s recent tie-up with UCO bank along with its strong market presence and improving VoNB margins on favorable product mix should aid growth going forward. We reiterate our BUY rating on the stock with a revised TP of Rs. 1,018 based on 2.8x FY22E Embedded value (EV).
GWP driven by Renewal premium growth
In Q1FY20, GWP rose 14.2% YoY to Rs. 7,643cr supported by rapid growth in Renewal Premium (+29.5% YoY) partially offset by NBP (-2.9% YoY) impacted by the lockdown. However, the company was quick to gain market share in Total NBP by 100bps YoY to 6.2% in Q1FY21, post the initial phase of the lockdown. Within NBP, notable decline came in from ULIP (-40.9% YoY) owing to the volatility in the financial markets. Protection business followed the suit (-34.1% YoY), however Group savings witnessed solid growth (56.3% YoY). APE saw a 32.1% YoY drop, as both its Agency (-34.6% YoY) and Banca (-39.8% YoY) were adversely hit.
Margin improves on favorable business mix
In Q1FY21, VoNB dropped 28.6% YoY to Rs. 237cr, while the VoNB margin expanded 80bps YoY to 18.7% owing to a slight improvement in the new business mix and profile (+620bps YoY) and partially offset by changes in economic assumptions (-420bps). Cost ratio improved by ~110bps to 10.1% supported by both Opex (~30bps) and Commission ratio (~80bps). PAT rose 5.1% YoY to reach Rs. 391cr partly aided by lower expenses. Solvency ratio improved to 2.39x (vs. 1.95x in Q4FY20) as against the regulatory mandated 1.50x
* During Q1FY21, company’s AUM portfolio was split equally (50:50) between linked and non-linked policies. Of the debt instruments, ~90% of the investments are in AAA-rated and Sovereign bonds. The debt-equity mix stood at 76:24.
* 13th Month Persistency ratio (based on premium) stood at 81.6% (as against 84.5% in Q1FY20).
* On June 22, SBI Life announced its tie-up with UCO Bank to provide insurance solutions via their 3,086 branch network to boost its Banca distribution channel.
Outlook and Valuation
The initial adverse impact of the lockdown on the NBP have started to show signs of recovery. The strong brand recognition along with wide distribution network should aid growth. We reiterate our BUY rating on the stock with a revised target price of Rs. 1,018 based on 2.8x FY22E EV.
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