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Business gains traction; to continue ahead…

SBI Life Insurance reported strong growth on the premium front while controlled cost ratios, sequential decline in actuarial liabilities aided the company to have a healthy surplus and PAT. Premium growth remained healthy at 31% YoY, 13% QoQ to | 15556 crore, led by higher traction in first year premium (up 45% YoY) and single premium (up 97% YoY). Growth in renewal premium continued to remain healthy at ~16% YoY to | 9459 crore.

New business premium (NBP) also witnessed a sequential pick-up in growth as it was up 13.8% QoQ, 62% YoY to | 6189 crore, led by traction in individual business at | 2930. Protection business (individual + group) continued to report strong growth at | 840 crore vs. | 710 crore QoQ; proportion of total protection NBP to total NBP was at ~13.6% in Q4FY21 vs. 13.1% in previous quarter. As a result of increased quantum of protection and non-par business, VNB margins improved from 19.3% to 20.4%.

AUM growth accelerated 38% YoY to | 220870 crore. Shareholders and policyholders (excluding linked liabilities) assets witnessed healthy growth at ~26% and ~28% YoY, respectively. Assets held in lieu of linked products jumped ~48% YoY to | 116215 crore. Commission increased 29% YoY to | 585 crore while commission ratio remained steady at 3.8% YoY, QoQ, opex ratio declined to 4.2% from 6.1% YoY, 4.7% QoQ. Consequently, the management expense ratio improved to 8.0% vs. 9.9% YoY. Strong premium growth coupled with less actuarial liability led to a policy holder surplus of | 507 crore vs. | 361 crore YoY. Focus on efficiency led to PAT of | 532 crore, in line with our estimates. Solvency ratio was healthy at 2.15x against 1.95x YoY.

Business growth to continue; second wave a near term concern

Post a sluggish Q4FY20 and Q1FY21, business traction has witnessed continued traction. The same is expected to continue ahead. Focus on individual protection is expected to remain abated while a gradual pick-up in credit growth is seen propelling credit protect business. Demand for Ulip and annuity products is expected to remain robust ahead. Thus, overall premium accretion is seen at ~14.9% CAGR in FY21-23E to | 65760 crore, while VNB margin is seen remaining at 19-20% in FY21-23E.

Valuation & Outlook

A pick-up in business with focus on high yield products including protection and non-par products is seen aiding premium growth as well VNB margins. Strong distribution (banca as well as agency) channel would enable it to pedal business growth, though opex is seen touching floor. Thus, operational efficiency and steady persistency is expected to further aid profitability. We continue to remain positive on businesses with long term growth potential and relatively lower balance sheet risk. Hence, we upgrade our target price to | 1100/share (earlier | 1000), valuing the stock at ~2.7x FY23E EV. We maintain our BUY recommendation.

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