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SBI Life reported a VNB growth of 11.5% YoY – APE grew 20.1% to INR 36.4bn while VNB margins contracted by 200bps YoY to 26.6%. VNB, at INR 9.7bn, was 6% below JMFe. The company attributed the YoY contraction in margins to product mix shift. Its ULIP premiums grew 40% to INR 22.2bn. While non-par grew 21%, par product contracted 30% to INR 1.4bn. The company saw an 8% YoY contraction in annuity to INR 1.2bn, led by pricing pressure. Further, protection growth was subdued, with individual protection contracting 29% YoY and group protection contracting by 6% YoY, to, co-incidentally, both at INR 1.5bn. Its strong banca channel continued to underperform on growth – with individual APE from the channel growing 12% to INR 20.7bn, in-line with FY24 growth but above 4Q growth of 6%. It saw its commissions to GWP ratio rise by 40bps from 4.0% to 4.4% despite a higher ULIP mix, due to the enhanced limits notified by IRDAI. The company does not expect any further change in commission structure. Performance on protection growth remains the key, as it will also support VNB margins. We estimate APE/VNB/EV growth of 16.5%/16.5%/19.4% CAGR over FY24-FY26. We continue to value the company at 2.2x FY26e EV of INR 833.7bn, maintain our Target Price of INR 1,783. Maintain BUY.

* APE growth led by strong ULIP sales: We have seen strong ULIP sales for all insurers in last few quarters, and SBI Life, the market leader in ULIP sales, was no exception. Its ULIP premiums grew 40% to INR 22.2bn. While non-par grew 21%, par product contracted 30% to INR 1.4bn. The company saw an 8% YoY contraction in annuity to INR 1.2bn, led by pricing pressure. Protection sales was slow in the quarter – while individual protection contracted 26% YoY to INR 1.5bn, group protection sales fell 6% YoY to INR 1.5bn. Within group protection, credit protect to group term was in the ratio of 1:2. The company is focused on growing protection – with the launch of higher Sum Assured variants. Further, it has identified educational loan customers for sales of both individual and group protection. It has traditionally focused on home loan customers for credit-protect business. The company also intends to increase rider attachment to grow its VNB margins

* Banca sluggish but picks up to +12% YoY: Banca continued to underperform on growth – with individual APE from the channel growing 12% to INR 20.7bn, in-line with FY24 growth but above 4Q growth of 6%. At 62.5% of individual business, banca (entirely SBI) holds the key to the company’s growth. The company expressed confidence in growth returning to the channel during 2Q-3Q of FY25. Non-banca channels grew strongly – agency +48% to INR 10.7bn (32% of individual business), while other channels (incl. non-SBI bancassurance) grew 31%. The share of non-banca, non-agency remains low at 5% of individual APE.

* VNB grew 11.5% to INR 9.7bn, 6% below JMFe, margins contracted 200bps to 26.8%: SBI Life saw VNB margins contract 200bps YoY to 26.8%. Total VNB came in at INR 9.7bn, +11.5% YoY. The contraction in margin is line with that seen in FY24, and the absolute VNB growth, at 11.5% YoY, was an improvement over 9.5% growth in FY24. The company attributed the contraction in margins to a negative 2.6% impact due to product mix shift, compensated by a 0.7% impact of change in operating assumptions. The impact of product mix shift is visible through a higher ULIP share in savings, at 72.5%, against 67% in 1Q24. However, the mix improved QoQ from 76.3% in 4Q24. Further, low protection share contributed to the miss on margins. Despite the low, 11%, APE share, we estimate that protection contributed 24% to FY24 VNB margins for SBI Life. With the company’s roadmap for protection growth, we maintain our FY25 VNB margin estimates at FY24 levels of 28.1%. In our IC note, we had highlighted that the company has richly priced its protection policies compared to peers, but it has signalled a willingness to remain competitive with targeted product launches.

* Impact of IRDAI regulations on commissions and surrender payouts: SBI Life saw its commissions to GWP ratio increase by 40bps from 4.0% to 4.4% despite a higher ULIP mix, due to the enhanced limits notified by IRDAI. The company does not expect any further change in commission structure – with respect to any corporate or individual channel agent. On the impact of surrender charges, the company did not give out a number but reiterated that the impact would be minimal due to the lowest, 25%, share of traditional products in its savings mix, amongst listed players

* Valuation and view: We have remained confident in the strength of the company’s banca and growing agency. We had highlighted that the key monitorables are growth in protection and commission payouts. Discussions on raising commission payouts seem to have phased out, hence, performance on protection growth remains the key, as it will also support VNB margins. We estimate APE/VNB/EV growth of 16.5%/16.5%/19.4% CAGR over FY24-FY26. We continue to value the company at 2.2x FY26e EV of INR 833.7bn, maintain our Target Price of INR 1,783. Maintain BUY.

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