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Premium growth in line; VNB margin miss Maintains 20% growth and 28-30% VNB margin guidance

* SBILIFE reported a slightly muted performance in 1QFY24. APE grew 4% YoY (in line), while VNB was flat YoY as margins contracted 290bp QoQ to 28.7%, due to product mix shifting towards ULIPs. PAT grew 45% YoY to INR3.8b (27% beat).

* In terms of NBP, annuity saw a healthy growth of 102% YoY, while Non-Par savings declined 28% YoY in 1QFY24. Protection/ULIP segment saw modest growth of 11%/10% YoY.

* We slightly lower our VNB margin estimates and expect VNB margins to remain at 29.7% in FY25. We expect SBILIFE to deliver a 20% CAGR in APE over FY23-25, thus enabling a 17% VNB CAGR. RoEV is expected to stay at around ~22%. We reiterate our Buy rating on the stock

Non-par share falls QoQ, Protection business steady

SBILIFE reported 19% YoY growth in gross premium (4% miss), led by 28%/18% growth in renewal/single premium. Shareholders’ PAT grew 45% YoY to INR3.8b (27% beat).

* Total APE grew 4% YoY (in line), within which, Annuity grew 86% YoY. The Protection business grew 16% YoY, led by 33% growth in group protection. On a YoY basis, Par/ULIP segment grew 18%/17% YoY.

* On a sequential basis, the share of ULIP & protection business is maintained at 53% & 12%, respectively. The share of non-par savings stood at 19% vs. 28% in 1QFY23.

* SBILIFE anticipates that the product mix will continue to be influenced primarily by customer demand rather than being driven aggressively by the company’s sales team. Additionally, SBILIFE is optimistic about the non-par segment and foresees a potential recovery in is share over the next few quarters.

* Absolute VNB was flat YoY at INR8.7b (a 9% miss). VNB margins contracted 290bp QoQ to 28.7% (vs. estimate of 30.5%) due to weakness in the nonpar segment.

* On the distribution front, the share of the banca channel in total APE increased 280bp YoY, while the share of agency channel declined 170bp YoY.

* Except for 61M (improved 640bp YoY to 56.6% in 1QFY24), persistency declined across cohorts.

Highlights from the management commentary

* The management maintained the guidance of better-than-industry premium growth (expected growth of about 20-25%) and a range-bound VNB margin between 28% and 30%.

* The company acknowledged that in the near term, product-level margins are probably at optimum levels and the mix will be a key driver for the margin trajectory.

Valuation and view

SBILIFE reported a slightly muted quarter, with an in line APE and a miss in VNB margins, falling from 31.6% in 4QFY23 to 28.7% in 1QFY24. The fall in margins was primarily due to weakness in the Non-Par segment. SBI channel productivity has been improving and the company is working on improving its efficiency in the agency channel. SBI Life continues to maintain its cost leadership. We estimate a 20% CAGR in APE over FY32-25 and estimate VNB margin to remain at ~29.7% in FY25, thus enabling a 17% VNB CAGR. RoEV is expected to stay at around ~22%. We reiterate our Buy rating with a TP of INR1,570 (2.3x Mar’25E EV).

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