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Profitable growth trend continues

* SBIL reported healthy growth in value of new business (VNB) in Q1FY22, up ~45% yoy (-61% qoq) to Rs3.4bn. Annualized premium equivalent (APE) grew 27% yoy to Rs16.2bn. AUM growth was also healthy at ~32% yoy to Rs2.3tn. In NBP, SBIL maintained leadership among private players with an ~18.9% market share.

* VNB margins improved ~250bps yoy (-100bps qoq) to ~21.2% in Q1FY21, lower than our estimate of ~21.8% due to a surge in ULIPs (~37% of product mix) against non-par products. SBIL’s dependence on Bancassurance (~45% of distribution) would allow steady growth for ULIPs.

* SBIL, like its peers, witnessed a jump in Covid-related claims. It maintains Rs4.5bn in provisions, along with tightening of mortality assumptions. Management remains firm over SBIL’s ability to cope with incremental claims. SBIL saw a surge in demand for protection plans (~13% of mix), mainly aided by demand for group protection.

* We continue to like SBIL, considering steady growth and favorable risk-reward. We keep our estimates unchanged and maintain Buy with OW in EAP. We roll forward to Sep’22E and arrive at a TP of Rs1,230 (previously Rs1,150), corresponding to ~2.6x P/Sep’23E EV.

Sequential dip in VNB margins amid rise in ULIPs, improvement likely but pricing is key:

SBIL reported a ~100bps qoq decline in VNB margins at 21.2% (+250bps yoy) due to a shift in the product mix to ULIPs against non-par products. We expect the trend to improve with the rising share of protection plans. However, management needs to re-price its existing protection plans as most of the reinsurance companies have already opted for a price hike.

Best-in-class operating efficiency maintained:

SBIL is following Cardiff’s model on bancassurance distribution, making the bank sell insurance policies rather than driving sales through its own employees sitting in the branch. Overall opex ratio remained steady at 10.5% against ~10.1% last year. With further push for digitalization, management expects further improvement in the matrix.

Outlook and valuation:

Maintain Buy; OW in EAP: We continue to like SBIL, considering the gradual shift to a profitable product mix, relatively comfortable valuations, steady growth and favorable risk-reward. We keep our estimates unchanged and maintain Buy with OW in EAP. We roll forward to Sep’22E and arrive at a TP of Rs1,230 ((previously Rs1,150), corresponding to ~2.6x P/Sep’23E EV.

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