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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.

* VNB witnessed a positive impact to the tune of INR3.9b owing to volume growth and INR0.5b due to a change in economic assumptions. This was offset by an INR0.3b impact of new business mix, an INR0.2b impact of change in operating assumptions, and an INR0.6b impact due to GST 2.0. EV at the end of 1QFY27 was at INR852.9b, rising 15% YoY. The impact of GST is expected to be fully mitigated by 3QFY27.

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).

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