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Valuation attractive basis VNB growth/RoEV proposition

SBI Life’s VNB decline of 1% YoY in Q1FY24 was driven by lower APE growth (4% YoY) and 153bps decline in VNB margin (Q1FY24 margin stood at 27.8%). The muted show is attributable to a combination of base effect and relative change in product mix, as per the management. While the management has maintained a volume growth/margin guidance of 20%/28-30%, we remain structurally positive on its distribution strength (parent bank APE grew 7% YoY in Q1FY24 to INR 19.8bn) of the company and the overall brand franchise. This should help generate 11%/15% VNB growth and 19.6/19.2% ROEV in FY24E/25E, respectively. Maintain BUY.

Maintain BUY with an unchanged target price of INR 1,650 based on 2.5x (unchanged) FY25E EV

We factor VNB margin of 29% in FY24/25E. Our APE growth assumption of 15% remains unchanged in FY24E/FY25E. This results in an EV of INR 657bn with RoEV of 19.2% in FY25E.

Volume weakness attributed to base effect in Q1FY24

The APE growth in Q1FY24 for SBLI was 4% YoY on the base of a strong Q1FY23 which grew 80% YoY. Management expects volume growth to recover over the remaining FY24 helped by a gradual decline in base effect and overall organic growth. The full year guidance is maintained at 20%, implying 23% growth for the remaining 9MFY24 on APE basis. SBI channel grew 7% YoY in Q1FY24.

Margin decline driven by lower non-par mix. While overall margin is expected to be range bound, non-par mix should improve over the year

The non-par mix reached a high of 28% in Q1FY23 driven by new product launch which declined gradually to 22% for the full year FY23. While Q1FY24 non-par mix was 19%, it is ultimately expected to inch up to FY23 levels in FY24.

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