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Our view – Margins come under pressure due to unfavorable product mix but APE growth was healthy

VNB margin – Calculated VNB margin has contracted sequentially on the back of unfavourable product mix, among other factors: Calculated VNB margin for 1QFY25 fell -168bps QoQ and -206bps YoY to 26.6% (on effective tax rate basis). The reason for the YoY decline were increase in share of ULIP business, Lower share of protection business and for a specific period, for non-par savings business, the impact of yield movement was absorbed by the company and not passed on to customers. The company is taking steps to increase the share of protection and would launch a new digital protection product with competitive rates on SBI’s Yono app with pre-approved sumassured. The company is also designing a protection product for ultra HNIs for higher sum assured, which will be launched in August 2024. The management has guided that the impact of the change in surrender value regulation would be minimal for the company. The management has guided for a VNB margin of 28% for FY25 which would be driven by better product mix

APE growth - APE has grown sequentially driven by robust growth in ULIP product and the agency channel: New business APE de-grew/grew -31.7%/20.1% QoQ/YoY. The individual new business APE has grown by 23% YoY. ULIP segment has grown by 39.6% YoY and contributed 61% to total APE, up 851bps YoY. The total protection APE was down by -18.9% YoY and contributed 8% to total APE down -397bps YoY. The retail protection APE was down -28.6% YoY and contributed 4.1% to total APE. The banca channel APE was at Rs 21.6bn up 9.1% YoY. The agency channel APE was at Rs 10.9bn up by 45.3% YoY. During 1QFY25, the company added 11,188 net agents and the total agents were around 257,266 agents. The management has guided that the business growth (assume APE growth) will be in higher teens to 20% in FY25

We maintain ‘BUY’ rating on SBIL with a revised price target of Rs 1990: We value SBIL at 2.4x FY26 P/EV for an FY25E/26E RoEV profile of 20.0%/19.9%. MFSL is our other preferred pick in the life insurance space.

Other Aspects (See “Our View” above for elaboration and insight)

* VNB growth: VNB de-growth/growth was at -35.8%/11.5% QoQ/YoY where the YoY growth was driven by growth in APE

* Expense control: Expense ratio grew/de-grew 418/-29bps QoQ/YoY to 10.9%, where the opex ratio de-grew -70bps YoY and commission ratio grew 41bps YoY

* Persistency: 37th month ratio grew 12/219 bps QoQ/YoY to 71.4% whereas 61st month ratio grew 42/271 bps QoQ/YoY to 59.3%

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