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Strong growth; cut in margin due to GST/ULIP recovery

Q1FY27 APE grew 35% YoY driven by group protection portfolio. Company has maintained APE guidance of 14-15% in Individual APE for FY27E; we build an APE CAGR of 13% over FY26-28E, on account of strong volume in Q1. Q1FY27 VNB margin contracted to 26.3% on account of unfavorable product mix and GST impact. We build a margin of 27.2%/ 27.4% over FY27/28E, factoring the impact of GST in Q2FY27 and recovery in low-margin ULIP business. We ascribe a multiple of 2.0x (unchanged) on FY28E and value SBILIFEIN using the Appraisal Value framework with a TP of INR 2,200. Maintain ‘BUY’ on healthy growth outlook over FY26-28E.

Expect ~13% APE CAGR over FY26-28E:

Q1 APE grew ~35% YoY to INR 53.7bn driven by group protection growing by 3x YoY. However, commentary indicated growth to normalize over subsequent quarters as this business tends to be lumpy in Q1. On Individual protection (+19% YoY), management attributed growth to a shift from ROP products to pure protection products. PAR and Annuity segment grew by +33%/+15% YoY on a small base. ULIP segment witnessed slowdown with a soft growth of 7.5% YoY and a decline in share from 57.4% to 45.6% YoY in APE mix. ULIP/ PAR/ NPAR/ Protection/ Annuity/ Group Savings comprised 45.6%/4.5%/18.1%/26.4%/2.8%/2.6% of APE mix in Q1FY27. Q1FY27 APE has grown 35% YoY driven by one-time jump in group protection; management maintained its full year Individual APE guidance of 14-15%. We build overall APE CAGR of ~13% over FY26-28E, on account of a strong Q1, recovery in ULIP and sustained growth in protection.

Expect FY27 VNB Margin of 27.2%:

Q1 VNB grew 29.4% YoY to Rs 14.1bn, however VNB margin saw a decline of 120bps YoY to 26.3% due to higher share of group business and GST impact. Company expects the drag from GST exemption to persist over the next quarter as well and reiterated its VNB Margin guidance of 26–28%. We build 27.2%/ 27.4% over FY27/28E, factoring the impact of GST in Q2FY27 and recovery of growth in the low-margin ULIP portfolio.

Strong Agency/Banca growth; share of other channels increased YoY:

Banca/Agency/Others contributed to 47.4%/25.1%/27.5% of Q1FY27 APE. Banca witnessed a growth of ~10% YoY with SBI being the primary contributor and other banks growing by 19% YoY. Agency grew by 24% YoY due to long-term investment by the company (added more branches/ agents). Alternate channels (other banks, brokers, direct/online, corporate agents) were noted as a growing contributor to overall APE, with ex-SBI banca mix skewed toward non-ULIP products (~80%).

EV grows 15% YoY; cost ratio increases due to one-offs:

Embedded value grew 15% YoY to INR 853bn. While 61M persistency dropped to 58.4% (vs. 62.8% in Q1Y26), it was largely due to a Covid cohort; management expects the metric to normalize by year-end as the cohort moves past that mark. Others were largely steady (13M/25M/37M/49M at 87.7%/78.2%/72.4%/69.1%). Total cost ratio increased to 12.0% in Q1FY27 (vs. 10.8% in Q1FY26) due to (1) one-offs such as GST exemption and labor-code regulation and (2) stamp duty tracking higher sum assured. AUM grew 10% YoY to INR 5,248.5bn. Solvency ratio was comfortable at 196%.

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