Buy SBI Life Insurance Ltd For the Target Rs.2,160 by Axis Securities Ltd
Margins Surprise Positively; GST Impact Manageable!
Est. Vs. Actual for Q2FY26: NBP – BEAT; APE – BEAT; VNB/VNB Margins (%) – BEAT
Changes in Estimates post Q2FY26
FY26E/FY27E/FY28E (in %): NBP 0.0/-0.2/-0.5; APE 0.0/-0.4/-0.8; VNB +0.2/-0.4/-0.8
Recommendation Rationale
* GST Impact to be Offset By Favourable Product Mix Shift: In Q2, SBILIFE’s VNB growth (+14.5% YoY) outpaced APE growth (+10% YoY), driving VNB margins (calc.) higher at 27.9% vs 26.9%/27.5% YoY/QoQ. During the quarter, the impact of the GST rate cut was 80bps, of which 20bps was attributable to business booked post-GST rationalisation (after 22nd Sep’25) due to Input Tax Credit (ITC) disallowance. Excluding the GST impact, H1 VNB margins would have been strong at 28.5%. The management indicated that the annual impact of the GST rate cut and ITC disallowance is likely to be ~174 bps. They also stated that the GST rate cut should improve the affordability and penetration of life insurance. The company does not anticipate any adverse impact of the GST rate cut on ULIP business or margins, which are expected to remain resilient. In fact, ULIP margins could improve, driven by longertenure products and rider attachments. Thus, operational efficiencies, higher rider attachment, and a continued focus on improving product mix and margin profile should help SBILIFE maintain VNB margins in H2 at similar levels. The downside risk to margins is limited to 20–30 bps. The management reiterated its guidance to maintain VNB margins between 26–28% in FY26E.
* Protection Business Growth to Remain Healthy: The management highlighted that the protection business benefits most from GST rate cuts and expects robust growth in this segment. Protection business remains a key focus area, and SBILIFE has introduced new products through both the bancassurance and agency channels. Going forward, the company expects the share of the protection business to increase to over 10%, which should be margin-accretive.
Sector Outlook: Positive
Company Guidance and Outlook: The management has reiterated guidance for individual APE growth of around 13–14% for FY26. VNB margins are expected to remain range-bound between 26–28%, with a positive bias supported by a product mix shift toward non-par and protection products, offsetting the impact of GST input tax credit disallowance. The company remains focused on expanding its agency channel and digital sourcing to drive sustainable growth. Management guided for mid-teen growth in both the banca and agency channels in H2. SBILIFE’s ULIP share in the non-SBI channel remains relatively low (<25%), and management expects ~15% growth in H2, in line with H1 performance. We expect SBILIFE to deliver a healthy 15%/13%/12% CAGR in NBP/APE/VNB over FY26–28E.
Current Valuation: 2.25x FY27E EV Earlier Valuation: 2.25x FY27E EV
Current TP: Rs 2,160/share. Earlier TP: Rs 2,150/share
Recommendation: We maintain our BUY recommendation on the stock
Financial Performance
* SBILIFE’s NBP grew by 27/52% YoY/QoQ. Gross Premium (GWP) stood at Rs 250.8 Bn, ahead of our expectations, registering a 23/41% YoY growth. GWP growth was driven by 8/19/53% YoY growth in the First year/Renewal/Single premium, respectively. Commission ratio stood at 4.9% vs 3.7% in Q1FY25. Total opex ratio was steady at 11% vs 10.2% QoQ.
* In Q2FY26, APE stood at Rs 59.5 Bn and grew by 10/50% YoY/QoQ. VNB stood at Rs 16.6 Bn during the quarter, with VNB Margin (calc.) at 27.9% vs 27.5% QoQ. EV stood at Rs 760 Bn (+15/2% YoY/QoQ). 13th-month persistency for H1FY26 stood at 87.1% vs 86.4% YoY, due to the company’s focus on improving the quality of business and customer retention. 61st month persistency stood at 60.6% vs 61.9% YoY.
* In H1FY26, APE channel mix for bancassurance channel was 57%, agency channel at 29% & other channels at 14%. The agency channel grew by 2% YoY, while the banca channel grew by 8% YoY. In Q2FY26, SBILIFE saw growth along with strategic product mix shifts and strong performance in Individual and group protection segments.
Valuation & Recommendation:
We value SBILIFE at 2.25x FY27E EV vs its current valuations of 1.9x FY27E EV, to arrive at a target price of Rs 2,160/share. This implies an upside of 17% from the CMP. We recommend a BUY on the stock.
Relative Performance
For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home
SEBI Registration number is INZ000161633
