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Gross premium in line; VNB margin contracts to 26.8%

Focus on protection and non-par to improve margins in FY25E

* SBI Life Insurance (SBILIFE) reported a decent performance in 1QFY25. APE grew 20% YoY (in line) to INR36.4b, whereas absolute VNB grew 11.5% YoY (a marginal miss of 2.4%) to INR9.7b during the quarter.

* Strong growth in ULIPs and a blip in protection sales led to a contraction in VNB margin for 1QFY25. VNB margin came in at 26.8% vs. 28.8% in 1QFY24 (our estimate at 27.5%).

*  We expect SBILIFE to deliver an 18% CAGR in APE and VNB over FY24-26, while RoEV is likely to remain ~20%. We reiterate our BUY rating on the stock with a TP of INR1,900 (premised on 2.2x Mar’26E EV).

ULIP’s share in APE increases to 61% in 1QFY25

* SBILIFE reported 15% YoY growth in gross premium to INR155.7b (in line), led by 16% growth in renewal premium.

* Total APE rose 20% YoY (in line), within which, non-par and ULIPs grew 20.7% and 39.6%, respectively. The total protection business, however, dipped 18.9% YoY, led by a 28.6% YoY decline in individual protection business. The Par/Annuity segments decreased 30.0%/7.7%, YoY.

* The total cost ratio for 1QFY25 was 10.5% vs. 10.8% in 1QFY24. The commission ratio was 4.4% vs. 4.0% in 1QFY24. The operating expense ratio was 6.1% vs. 6.8% in 1QFY24.

* For 1QFY25, the share of ULIPs in APE increased to 61.0% from 52.5% in 1QFY24. The share of protection business declined YoY to 8.2% in 1QFY25 from 12.2%. On a YoY basis, the share of group protection and individual protection declined during the quarter.

* On the distribution front, the share of the banca and agency channels in total APE stood at 59.3% and 29.9%, respectively.

* On a YoY basis, except for the 49th Month (which declined 110bp YoY to 67.7% in 1QFY25), persistency improved across all cohorts.

* Shareholders’ PAT jumped 36% YoY to INR5.2b (vs. our estimate of INR4.0b; registering a 30.5% beat).

Highlights from the management commentary

* SBILIFE guided 18-20% premium growth and ~28% VNB margin for FY25.

* Lower VNB margin in 1QFY25 was due to: 1) a lower share of protection and 2) a reduced margin on non-par products due to timing differences between interest rate movement and IRR change.

* For reviving the protection segment, SBILIFE is working actively with SBI and, based on its customer data, will launch a protection product on the Yono app with: 1) pre-authorization, 2) simple product features, and 3) competitive pricing. Further, it plans to launch a new product in Aug’24 for the HNI segment with higher sum assured. Higher non-medical limits are also being implemented. 

Valuation and view

SBILIFE reported a decent performance during the quarter, with APE and VNB in line with estimates (VNB margin contracted to 26.8% in 1QFY25). New product launches are likely to kick-start the recovery in the protection segment. Further, the impact of surrender charges is likely to be minimal. Considering the seasonality, the SBI channel is anticipated to see recovery in growth in 2Q and 3Q. SBILIFE continues to maintain its cost leadership. We expect SBILIFE to deliver an 18% CAGR in APE/VNB over FY24-26, while RoEV is projected to remain ~20%. We reiterate our BUY rating on the stock with a TP of INR1,900 (premised on 2.2x Mar’26E EV)

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