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Profitable growth trend continues

* SBIL has reported robust growth in value of new business (VNB) at ~63% yoy (+26% qoq) to Rs8.8bn in Q4FY21 with consistent expansion in margins. Assets under management (AUM) rose sharply by 38% yoy to Rs2.2tn, with Private market share in NBP at ~21.9%. Renewals grew by 23% with 13th month persistency at 87.9%.

* VNB margins improved by ~210bps yoy (+220bps qoq) to ~22.2% in Q4FY21, which was better than our and Street expectation. With a gradual rise in protection products, the overall margin profile should witness steady growth, in our view. The rise in single premium policies should also provide some support to margin.

* Management remains firm over the rising share of Protection plans through increasing focus on credit protection. However, like IPRU, SBIL also has large dependence on Bancasurance (~56% of distribution by SBI), which could trigger steady growth for ULIPs especially in H2FY22 as the overall equity market is witnessing some stabilizing trends.

* We trim our VNB margin estimate to ~21.3% for FY23 (vs. ~23% earlier). We introduce FY24 estimates with VNB margins at 21.8% and an ~18% CAGR in absolute VNB to Rs38.3bn by FY24. We maintain Buy with OW in EAP and revise the TP to Rs1,150 (Rs1,050 earlier), corresponding to 2.6x P/EV FY23E.

Improvement in VNB margins likely but pricing is the key:

SBIL has reported further improvement in VNB margins at 22.2% (+210bps yoy) with a shift in the product mix to the non-par business and a gradual rise in protection plans. We expect the trend to improve further with the rising share of protection plans and elevated share of non-par businesses. However, management needs to re-price its existing protection plans since most of reinsurance companies have already opted for a price hike. Management has confirmed that the current protection plans are being priced cheaper to HDFCSL; however, post rise in prices, the competition from HDFCSL would surely play an important role.

Best-in-class operating efficiency maintained: SBIL is following the Cardiff’s model on bancasurance distribution, making the bank sell insurance policies rather than driving sales through its own employees sitting in the branch. Overall Opex ratio for SBIL has improved to ~4.8% against ~5.9% last year, while commission ratio has improved to ~3.5%. With further push for digitalization, management expects further improvement in the matrix.

Outlook and valuation: Maintain Buy/OW in EAP: Through a gradual shift to a profitable product mix and relatively comfortable valuations, we continue to like SBI Life in the insurance space. We have moderated our VNB margin estimate to ~21.3% for FY23 (vs. ~23% earlier). We introduce FY24 to our estimates with VNB margins at 21.8% and an ~18% CAGR in absolute VNB to Rs38.3bn by FY24. We maintain Buy with OW in EAP and revise the TP to Rs1,150 (Rs1,050 earlier), corresponding to 2.6x P/EV FY23E.

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