IGI Logo

Beat on APE and absolute VNB

* SBI Life Insurance (SBILIFE) reported new business APE of INR53.8b (10% beat), reflecting a strong growth of 36% YoY in 1QFY27.

* Absolute VNB grew 29% YoY to INR14.1b (5% beat), reflecting a VNB margin of 26.2% for the quarter vs. 27.4% in 1QFY26 (our est. of 27.5%).

* SBILIFE reported a 22% YoY growth in shareholder PAT to INR7.2b (7% beat). EV at the end of 1QFY27 was at INR852.9b, rising 15% YoY.

* Management is confident of sustaining ~14-15% APE growth trajectory. In the coming quarters, VNB margin is expected to move towards the upper end of the guided range of 26-28% through a higher contribution from individual business and mitigation of GST impact by 3QFY27.

* We retain our APE estimates but cut our VNB margin by 50bp in FY27, considering the 1QFY27 performance. However, we maintain our EV estimates with operating RoEV at ~18% for FY27/28. We reiterate our BUY rating with a revised TP of INR2,240 (based on 2x FY28E P/EV).

Strong growth in protection owing to the lumpy group business

* SBI Life reported a gross premium of INR212.9b (5% beat), reflecting growth of 20% YoY, driven by 17% YoY growth in renewal premium and 40% YoY growth in first-year premium.

* The total cost ratio was 12% vs. 10.8% in 1QFY26, with the commission ratio at 4.4% and the opex ratio at 7.7%. The impact of the new labor code, along with rising protection coverage and a higher sum assured, drove the increase in the cost ratio.

* On the product front, ULIP APE improved 7% YoY; however, its contribution to total APE declined to 45.5% (57.4% in 1QFY26). Par APE improved 33% YoY; however, its contribution was stable YoY at 4.5%. Non-par savings rose 26% YoY. Individual protection grew 19% YoY. The annuity segment saw 15% YoY growth. The lumpy group protection business witnessed growth of 310% YoY but impacted VNB margin by 0.6% YoY in 1QFY27.

* On the distribution front, the agency channel posted 20% YoY growth, driven by 56%/24%/13% YoY growth in par/non-par/ULIP segments. Agency productivity has reached INR200,000. Individual APE in the bancassurance channel improved 9% YoY, with ULIP/non-par up 5%/22% YoY, while the par segment remained flat YoY. Other channels (brokers, digital, etc.) witnessed 28% YoY growth in individual APE, driven by 2x YoY growth in the par segment and 42% YoY growth in non-par, while ULIP declined 20% YoY.

* The company witnessed improvement in persistency across 13M/25M/37M cohorts to 84.4%/76.8%/70.9% (vs. 84.2%/75.2%/70.3% in 1QFY26), while the 49M/61M persistency declined to 67.9%/59.1% (vs. 68.1%/59.8% in 1QFY26). The 61M persistency  the Covid cohort is expected to normalize from 3QFY27 as the cohort moves out of the 61M bucket.

* AUM grew 10% YoY to INR5.2t. The solvency ratio remained at 1.96x.

Valuation and view

* SBILIFE’s 1Q VNB margin was impacted by GST changes as well as lumpy group business, which was offset, to some extent, by a favorable product mix, rising rider attachment rates, and strong business volumes. Going forward, steady traction in non-linked products and complete mitigation of GST 2.0 impact is expected to drive VNB margin in the upper range of the 26-28% guidance band.

* Continued investments in agency and digital channels are likely to drive overall growth, supported by a gradual growth recovery in the bancassurance channel.

* We retain our APE estimates but cut our VNB margin by 50bp in FY27, considering the 1QFY27 performance. However, we maintain our EV estimates with operating RoEV at ~18% for FY27/28. We reiterate our BUY rating with a revised TP of INR2,240 (based on 2x FY28E P/EV).

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412