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Our view – Product mix-driven margin compression and slower growth than guidance don’t necessitate change in overall stance

While VNB margin has declined, it has not declined as much as product mix change dictates, ceteris paribus: VNB margin for 9MFY24 was 28.1% compared with 29.6% in 9MFY23. There was 200 bps negative impact YoY due to change in product mix, mainly towards ULIP. The negative impact of product mix was offset to some extent by margin enhancement within the product buckets. Management has guided for maintaining VNB margin at 28% in 4Q.

Management has guided for APE growth in FY25 to be similar to what has been achieved in FY24 so far: Total APE was up by 17% YoY, whereas Individual APE was up by 15% YoY. Management had been guiding for ~20% growth in FY24. The key Protection APE was up 24% YoY. However, Individual protection growth has slowed but this should see improvement in 4Q. Group protection NBP grew by 25% YoY, with the growth driven by group term life. In terms of product mix going forward, there will be focus on Non-Par savings and Protection.

Non-banca non-agency APE growth has been faster, while management is expecting improved Agency growth in 4Q: The Banca, Agency and Others APE has grown 15% YoY, 15% YoY and 40% YoY, respectively. Growth in the Others channel was driven by volumes on the company’s own website. Banca and Agency have contributed 65% and 24% to APE, whereas Others have contributed 11%. Agency channel has slowed down in 3Q but there is more focus on the banca channel seasonally in 3Q and management is expecting better numbers from the Agency channel in 4Q.

We maintain ‘BUY’ rating on SBIL with a revised price target of Rs 1825: We value SBIL at 3.0x FY25 P/EV for an FY24E/25E/26E RoEV profile of 20.7/21.2%/21.6%.

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

VNB margin: Calculated VNB margin for 3QFY24 fell -108bps QoQ and -40bps YoY to 27.4% (on effective tax rate basis)

VNB growth: VNB growth was at 12.8%/11.3% QoQ/YoY where the YoY growth was driven by growth in APE

APE growth: New business APE grew 17.2%/12.9% QoQ/YoY driven higher YoY by ULIP, Annuity and Group Savings

Expense control: Expense ratio grew 27/63bps QoQ/YoY to 9.8%, where the opex ratio grew 19bps YoY and commission ratio grew 44bps YoY

Persistency: 37th month ratio de-grew -26/-270 bps QoQ/YoY to 68.0% whereas 61st month ratio de-grew/grew -24/257 bps QoQ/YoY to 55.9%

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