Buy SBI Life Insurance Ltd for the Target Rs. 2,240 by Motilal Oswal Financial Services Ltd
VNB margin expansion continues; ~80bp impact of GST in 1HFY26
* SBI Life Insurance (SBILIFE) reported a 10% YoY growth in the new business APE to INR59.5b (in-line). For 1HFY26, APE grew 10% YoY to INR99.2b.
* Absolute VNB grew 14% YoY to INR 16.6b (5% beat), reflecting a VNB margin of 27.9% for the quarter vs 26.9% in 2QFY25 (vs our est. of 27%). For 1HFY26, VNB grew 14% YoY to INR27.5b, resulting in 100bp YoY VNB margin expansion to 27.8%. Without the impact of loss of input tax credit, the VNB margin for 1HFY26 was 28.5%.
* The company reported a 7% YoY decline in shareholder PAT to INR4.9b (9% miss). For 1HFY26, PAT grew 4% YoY to INR10.9b.
* Management expects individual APE growth of around 13-14%, driven by strong traction in protection and non-par products. Going forward, the GST impact is expected to be offset by increased demand for protection products, higher rider attachment, and improved operational efficiency. Accordingly, management has maintained its FY26 VNB margin guidance of 26-28%.
* We have slightly increased our APE growth estimates but have cut down our VNB margin estimates by 50bp for FY27/28 (considering the GST impact). We have also tweaked our operating variance estimates to factor in the loss of input tax credit, resulting in ~1% impact on EV in FY26/27/28. We roll over to Sep’27 EV to arrive at our TP of INR2,240 (based on 2.1x Sep’27E EV. Reiterate BUY.
Non-par growth momentum strong across channels
* SBI LIFE reported gross premium of INR250.8b (7% beat), reflecting growth of 23% YoY, driven by 19% YoY growth in renewal premium to INR140b (inline), 53% YoY growth in single premium (31% beat), and 8% YoY growth in first year premium (in-line).
* The total cost ratio was 11% vs. 9.7% in 2QFY25. The commission ratio increased to 4.9% from 4.1% in 2QFY25. The operating expense ratio stood at 6.1% vs. 5.6% in 2QFY25.
* On the product front, ULIP APE declined 2% YoY, leading to a decline in contribution to 58% of total APE (65% in 2QFY25). Non-par savings/annuity witnessed strong growth of 40%/50% YoY, bringing the contribution to 20%/3% of the total APE (15.6%/2.2% in 2QFY25). The par segment’s APE declined 13% YoY, leading to a decline in total APE contribution to 4.7% (5.9% in 2QFY25). Individual protection witnessed strong growth of 24% YoY.
* In the group segment, group savings witnessed 145% YoY growth, while the group protection business grew 15% YoY. Credit Life APE witnessed growth of 25% YoY. Management aims to increase its protection contribution to 10% of the total APE.
* On the distribution front, the agency channel witnessed a 3% YoY growth, driven by 36%/7% YoY growth in non-par/par segments, while ULIP declined 7% YoY. Individual APE in the bancassurance channel grew 6% YoY, driven by 34% YoY growth in the non-par segment, while the par segment declined 33% YoY. ULIP remained flattish YoY. Other channel partners (brokers, digital, etc.) witnessed 29% YoY growth in individual APE, driven by 58% YoY growth in the non-par segment, while ULIP declined 17% YoY and par remained flattish YoY.
* The company witnessed continued improvement in the 13th and 61st month persistency (based on premium) in 2QFY26, increasing ~120bp and ~30bp YoY, respectively.
* AUM grew 10% YoY to INR4.8t (in line). Solvency ratio remained stable at 1.94x. EV at the end of 1HFY26 was at INR760b, reflecting an operating RoEV of 17.6%.
Highlights from the management commentary
* During the quarter, SBILIFE launched a new protection plan and a participating product, both of which have seen encouraging demand. The Smart Money Back Plus plan alone attracted over 8,500 customers in just the first 15 days of launch.
* On the ULIP front, 38% of eligible products have rider attachments, and the company is working on extending these attachments to renewals as well.
* For 2HFY26, management estimates an additional 20-30bp margin impact due to GST, though overall profitability should remain stable as product mix optimization and operational efficiencies begin to reflect.
Valuation and view
* SBILIFE continued to report VNB margin expansion in 2QFY26, aided by a strong traction towards protection products, rising rider attachment rates, and a shift in the product mix towards non-par savings. Going forward, sustained traction in non-linked products and further improvement in rider attachment are expected to drive VNB margin expansion.
* Continued investments in agency and digital channels are expected to drive overall growth, supported by a recovery in the bancassurance channel. We expect SBILIFE to clock a CAGR of 14%/15% in APE/VNB over FY25-28, while RoEV is likely to remain at ~18%
* We have slightly increased our APE growth estimates but have cut down our VNB margin estimates by 50bp for FY26/27 (considering GST impact). We have also tweaked our operating variance estimates to factor in the loss of input tax credit, resulting in ~1% impact on EV in FY26/27/28. We roll over to Sep’27 EV to arrive at our TP of INR2,240 (based on 2.1x Sep’27E EV. Reiterate BUY.
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