Buy SBI Life Insurance Ltd For Target Rs.1,600 - Yes securities
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Result Highlights
* VNB margin: Calculated VNB margin for 4QFY23 rose 375bps QoQ and 457bps YoY to 31.5% (on effective tax rate basis)
* VNB growth: VNB de-growth/growth was at -4.6%/29.7% QoQ/YoY where the strong YoY growth was driven by margin expansion
* APE growth: New business APE de-growth/growth was at -16%/10.9% QoQ/YoY driven higher YoY by growth in individual savings Par and Non-par
* Expense control: Expense ratio grew 24/36bps QoQ/YoY to 9.4%, QoQ moved higher by growth of 26bps in opex ratio
* Persistency: 37th month ratio grew 371/344 bps QoQ/YoY to 74.4% whereas 61st month ratio grew 436/652 bps QoQ/YoY to 57.7%
Our view – APE growth guidance remains healthy despite high base
Management makes particularly confident growth guidance, given elevated base ofFY23: Management stated that APE growth in FY24 would be in the range of 20-25% even on an elevated base of FY23. They further assured that tax deduction under section 80C is no longer a key reason for people buying insurance.
While management did not provide margin guidance per se, they re-iterated that there is no specified limit for Non-Par business: Margin has improved YoY mainly due to change in product mix, which mainly constituted a rise in the share of Non-Par business. The share of ULIP has declined from 66% in FY22 to 55% in FY23 whereas the share on Non-Par has increased from 29% to 39%. The rise in share of Non-Par was driven by the product Smart Platina Plus. Notably, and in a departure from other listed players, retail protection de-grew 5% YoY in 4Q, when certain other type of products
got sold.
The rate of unwind has emerged as a new talking point on the EV walk: The rate of unwind has moved up to 8.6% in FY23. This is due to the yield curve moving and also due to the portfolio composition moving in favour of Non-Par, which is longer duration.
We maintain ‘BUY’ rating on SBIL with a revised price target of Rs 1600: We value SBIL at 3.0x FY24 P/EV for an FY24E/25E RoEV profile of 22.2/22.5%.
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