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Nimble pricing changes aid material margin expansion

Result Highlights

* VNB margin: Calculated VNB margin for 2QFY22 grew by 181bps QoQ and 595bps YoY to 25.9% (on effective tax rate basis)

* VNB growth: VNB growth was healthy at 164%/91% QoQ/YoY driven by both VNB margin expansion and healthy APE growth

* APE growth: New business APE growth was strong at 146%/47% QoQ/YoY driven by all-round growth across most key segments

* Expense control: Expense ratio declined 182 bps QoQ but rose 85 bps YoY to 8.7% as opex ratio declined 232 bps QoQ but rose 38 bps YoY

* Persistency: 37th month ratio rose 70 bps/24 bps QoQ/YoY to 68.9% whereas 61st month ratio declined 195 bps/ 431 bps QoQ/YoY to 43.4%.

Our view –

Nimble pricing changes aid material margin expansion According to management, pricing changes were the key factor behind margin enhancement: The company has a policy of actively re-pricing various products. SBIL has re-priced its annuities product, come out with new term plan with attractive pricing as well as re-priced its existing term plan since May. Other factors aiding VNB margin were the volume of business going up and product mix change.

SBIL delivered on the growth front with most key segments delivering healthy growth: Non-par savings, ULIP led the growth with 104% and 68% growth YoY. Individual protection and group protection also displayed reasonable growth at 21% and 20% growth YoY. SBI launched a new pure protection (Non ROP) product E-Shield during the quarter. This product was launched with dynamic risk pricing model as required by the reinsurers and hence, pricing change for this product is not expected for the next 12-18 months.

With the launch of the new pure term plan, the share of ROP may start to move a bit lower than the 85% it traditionally occupies in retail protection. There was weakness in Group annuities, which is a lumpy business but growth in Group annuities is expected to return. Individual annuities have displayed good growth driving overall individual new business growth.

We maintain ‘BUY’ rating on SBIL with a revised price target of Rs 1575: We value SBIL at 3.3x FY23 P/EV for an FY22E/23E/24E RoEV profile of 20.8/20.4/20.1%.

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