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APE & VNB margins in line

Maintains 20% APE growth and 28-30% VNB margin guidance

* SBI Life Insurance (SBILIFE) reported in-line performance in 2QFY24. APE grew 33% YoY (in line) while VNB rose 20% YoY. Margin contracted 310bp YoY to 28.5% as product mix shifted towards ULIPs. PAT was flat YoY at INR3.8b (vs. our estimate of INR4.2b; 10% miss).

* In terms of NBP, the Group Savings posted a healthy growth of 70% YoY, while Non-Par savings declined 6% YoY in 2QFY24. Protection and ULIP segments reported a robust growth of 37% and 39% YoY, respectively.

* We expect SBILIFE to deliver a 20% CAGR in APE over FY23-25, thus enabling a 19% VNB CAGR. RoEV is likely to stay at ~21-22%. We reiterate our BUY rating with a TP of INR1,570 (based on 2.3x Mar’25E EV).

Share of ULIPs and Protection improves

* SBILIFE reported 21% YoY growth in gross premium (broadly in line), led by 33%/35% growth in first year/single premium. Shareholders’ PAT was flat YoY at INR3.8b (vs. our estimate of INR 4.2b; 10% miss).

* Total APE jumped 33% YoY (in line), within which Group Savings surged 69% YoY. The Protection business grew 56% YoY, led by 113% growth in Group Protection. ULIP segment grew 50% YoY whereas the non-Par segment declined 7.5% YoY during the quarter.

* On a sequential basis, the share of ULIP and Protection businesses rose to 58% and 13%, respectively. The share of Non-par Savings declined to 16% vs. 19% in 1QFY24.

* Absolute VNB grew 20% YoY to INR14.9b (in line) while VNB margins contracted 310bp YoY to 28.5% (vs. estimate of 28.9%).

* On the distribution front, the share of the banca channel in total APE declined 600bp YoY, while the share of agency channel grew 200bp YoY.

* Except for 25M (which declined 80bp YoY to 76.7% in 2QFY24), persistency improved across all cohorts.

Highlights from the management commentary

* Future product launches include: 1) non-par savings, 2) rider portfolio revision, and 3) ROP protection for higher ticket sizes.

* In spite of a higher share of ULIPs, VNB margins remained flat QoQ. Within the segment, mix of protection and annuities has improved while non-par product has been repriced, which has delivered better margins.

* Strategic initiatives in the agency channel have started reflecting with stronger growth in the second quarter. Agency count addition has also been stronger in 2Q, which should start yielding results over the medium term.

* During 1HFY24, SBILIFE reported 48% YoY growth in sum assured vs. 45% YoY growth for the industry.

Valuation and view

SBILIFE reported decent performance during the quarter, with in-line APE and VNB margins (VNB margins contracted 310bp YoY to 28.5% in 2QFY24). SBILIFE’s channel productivity has been improving, and the company is working on improving its efficiency in the agency channel. SBILIFE continues to maintain its cost leadership. We estimate a 20% CAGR in APE over FY23-25 and estimate VNB margin of ~29.7% in FY25, thus enabling a 19% VNB CAGR. RoEV is expected to stay at around ~21-22%. We reiterate our BUY rating with a TP of INR1,570 (based on 2.3x Mar’25E EV).

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