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RoEV seems to adjust lower but settles at a still healthy level

Our view – Growth issues frustrate, while margin creditably sustains

APE growth – APE growth was sluggish, held back by a digital push at SBI parent that seemed to disrupt BAU sales: New business APE grew 48.1%/3.1% QoQ/YoY. The bancassurance channel APE growth was slow at 3.3% YoY for the quarter. Bancassurance growth has slowed since, at SBI parent, the company is trying to shift business to customer-initiated digital transactions. The branch employees are making customers aware of products available on SBI’s app Yono. Also, last year, the banca channel was growing at 15-18% and hence, the base was high. The agency channel, on the other hand, has grown at 24.5% YoY in 2Q, driven by effort to enhance agent productivity. In terms of guidance, for FY25, the company is expecting to grow at 1517% YoY on IRP basis.

VNB margin – Calculated VNB margin has inched up sequentially, while management guided for stable to positive margin: Calculated VNB margin for 2QFY25 rose 25bps QoQ but fell -159bps YoY to 26.9%. Recently, 2 products have been launched in the Protection segment, which will have a positive impact on margin. The Non-Par margin has improved slightly on sequential basis due to repricing and would improve further in 3Q. The company’s surrender values were already much better than the industry and hence, the new guidelines impact them the least. The guidelines are expected to impact VNB margin by upto 50 bps, ceteris paribus. The company sticks to full year FY25 VNB margin guidance of 26-27%. It is possible that margin may be better than 27% but since the company wishes to optimize for APE growth, it is not guiding higher. The intention is to achieve VNB margin of 28% on long-term basis.

We maintain ‘BUY’ rating on SBIL with a revised price target of Rs 2075:  We value SBIL at 2.5x FY26 P/EV for an FY25/26/27E RoEV profile of 19.1%/19.0/18.7%.  

(See Comprehensive con call takeaways on page 2 for significant incremental colour.)

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

? VNB growth: VNB growth/de-growth was at 49.5%/-2.7% QoQ/YoY where the QoQ growth was driven by growth in APE

? Expense control: Expense ratio de-grew/grew -22/111bps QoQ/YoY to 10.6%, where the opex ratio grew 117bps YoY but commission ratio de-grew -6bps YoY  

? Persistency: 37th month ratio de-grew/grew -8/304bps QoQ/YoY to 71.3% whereas 61st month ratio grew 682/1004 bps QoQ/YoY to 66.1% 

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