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SBIL largely protects margin despite rise in the share of ULIP

Result Highlights (See “Our View” for elaboration and insight)

* VNB margin: Calculated VNB margin for 2QFY24 fell -22bps QoQ and -306bps YoY to 28.5% (on effective tax rate basis)

* VNB growth: VNB growth was at 71.3%/20.2% QoQ/YoY where the YoY was driven by growth in APE

* APE growth: New business APE grew 72.6%/33.1% QoQ/YoY driven higher YoY by ULIP, Group Protection and Group Savings

* Expense control: Expense ratio de-grew/grew -161/3bps QoQ/YoY to 9.5%, QoQ moved lower by a fall of -253bps in opex ratio

* Persistency: 37th month ratio de-grew -93/-420 bps QoQ/YoY to 68.3% whereas 61st month ratio de-grew/grew -51/331 bps QoQ/YoY to 56.1%

Our view – SBIL largely protects margin via product repricing and protection traction

The relative sequential sustenance of margin was on account of traction for protection and repricing of non-par guaranteed and annuity products: Sequentially, the VNB margin was relatively stable despite a rise of 527 bps QoQ in the share of ULIP to 58% of APE. In terms of guidance, management reiterated the VNB margin range of 28-30%.

Management sounded particularly confident in reiterating full year APE growth guidance of 20%: For the quarter, the growth for ULIP APE was 50.2% YoY, driven by strong equity markets, to Rs 30.2bn. The other two individual savings’ segments, Par and Non-Par, de-grew -4.2% and -7.5%, respectively, in APE terms, to Rs 2.3bn and Rs 8.6bn, respectively. Total protection APE grew 55.6% YoY to Rs 7bn even though individual protection de-grew -4.5% YoY to Rs 2.1bn. Group protection rose 113% YoY to Rs 4.9bn. Group protection growth was driven by group term, which saw healthy growth due to some deals fructifying. There is no strategic change in terms of approach to this business

While bancassurance remains the dominant channel, agency growth has been faster, with further strong traction in the offing: Agency APE has grown 24% YoY (26% share) compared with banca APE growing 16% YoY (60% share). The productivity of agents has gone up. There have been gross additions of about 50,000 agents in 1H and when these agents will turn active, they will contribute to more business in 2H.

We maintain ‘BUY’ rating on SBILwith an unchanged price target of Rs 1720: We value SBIL at 2.8x FY25 P/EV for an FY24E/25E/26E RoEV profile of 21.5/21.9%/22.2%.

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