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FY26 targets: Low-teens growth, margins at FY25, not 4Q25, levels

SBI Life reported a VNB (Value of New Business) of INR 59.5bn for FY25, +7% YoY, 1% below JMFe. Strong margins of 30.5% for 4Q almost compensated for weak growth of +2% YoY/+7% YoY in total APE/individual APE. QoQ margin improvement of 370bps was led by a product mix shift within both individual and group business. Savings mix shifted from 81/2/18 amongst ULIPs/par/non-par in 3Q to 67/4/29, while individual protection and annuity saw 3%/-6% YoY growth. Banca growth remained weak at 9% YoY while agency disappointed with 5% YoY growth. For FY26, the company is looking at 13-14% APE growth with margins range-bound at current levels of 27%-28%. While product mix is expected to be margin-accretive, the company intends to invest in technology, offices and headcount to shape Agency 2.0. The insurer targets ~10% growth from banca and ~25% growth from agency in FY26. We estimate consistent 13%+ YoY growth in APE over FY25-FY27e, with margins holding up. We expect operating variance to reduce but remain positive in the near term; hence, we expect consistent 17%+ EV growth YoY over FY25-FY27e. We raise our target price to INR 1,777 (up from INR 1,700), valuing the insurer at 1.8x FY27e (against 1.7x earlier) EVPS of INR 973. We maintain BUY.

* Targeting 13-14% APE growth in FY26, with 10% growth in banca and 25% in agency: Banca growth remained weak at 9% YoY while agency disappointed with 5% YoY growth, resulting in 7% growth in individual APE in 4Q, below FY25 growth of 12%. For FY26, the insurer is targeting 13-14% APE growth (above estimated industry growth of 12%), with 10% growth in banca and 25% in agency.

* Targeting VNB margins of 27-28% in FY26: 4Q margins surprised positively at 30.5%, a result of strong shift in the savings business from ULIPs to non-par business. The insurer launched four traditional products in the quarter, which helped in the pickup. Thus, the insurer ended FY25 with industry-leading margins of 27.8%. However, for FY26, the management expects margins to be range-bound at 27-28% as it invests in technology, offices and people (will add another 1,500 headcount over 26k employees currently) to build Agency 2.0, and expects a shift of ULIPs to par products, which have a similar margin profile.

* Operating variance remains strong: The Company reported operating variance of INR 7.3bn, led by improvement in mortality and persistency. With this, it reported EV growth of +21% YoY, ahead of 9% APE growth and 7% VNB growth. We expect operating variance to taper hereon, but remain positive, cushioning EV growth in FY26-FY27e to a CAGR of 18%.

* Valuation and view: We do not materially change our growth estimates – we expect 13% YoY growth in APE over FY25-FY27e, and stable margin at 28% levels, as the management has reduced its targets to these levels. At CMP, the stock trades at 1.9x/1.7x FY26e/FY27e EVPS, implying 13.7x/10.8x on FY26e/FY27e VNB, after accounting for VIF (Value of In-Force business). We believe these are inexpensive for 18% EV CAGR, as the insurer builds its product portfolio beyond ULIPs. We raise our target price to INR 1,777 (up from INR 1,700 earlier), valuing SBI Life at 1.8x FY27e EVPS of INR 973 (up from 1.7x FY27e EVPS earlier). We maintain BUY.

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SEBI Registration Number is INM000010361