Buy SBI Life Ltd For Target Rs 2,250 By Emkay Global Financial Services Ltd
SBI Life (SBILIFE) delivered a healthy performance in Q4FY26, with industryleading VNB margin at 28.3%, beating consensus’/our estimate of 28%/27.4%, respectively. Consequently, Q4 VNB at Rs16.3bn was 1.5% higher than our estimate. Despite the impact of GST ITC losses, the company delivered a strong VNB margin, led by robust growth in the pure-protection segment and a favorable product mix. Going forward, the management expects SBILIFE to deliver ~14% APE growth in FY27, while VNB margin is likely to be rangebound at ~27-28%. While growth is expected to be driven by the agency channel led by increase in number of branches, agent addition, and better productivity, the management remains focused on improving the product mix for driving margin expansion. To reflect the Q4 developments, we increase our APE estimates by ~1% while raising our VNB margin estimates by 20bps; this leads to ~1-2% increase in VNB over FY27-28E. Given its strong brand name, warhorse distribution channel, and low-cost advantage, we re-iterate BUY on SBILIFE with unchanged Mar-27E TP of Rs2,250 implying FY28E P/E of 2.0x.
Strong VNB margin delivery drives VNB beat
During Q4FY26, APE at Rs57.5bn increased 5.5% YoY, albeit ~2% lower than our estimate. For FY26, APE at Rs242.7bn increased 13% YoY. However, Q4 VNB margin at 28.3% was higher than our estimate of 27.4%. During FY26, VNB margin at 27.5% saw a 30bps decline YoY and was 20bps ahead of our estimate. As a result, Q4 VNB at Rs16.3bn was ~1.5% higher than our estimate; FY26 VNB at Rs66.7bn was higher than our estimate of Rs66.5bn. The company delivered an industry-leading VNB margin despite the impact of GST ITC losses backed by strong growth in Pure Protection and an improvement in the product mix. Embedded Value at Rs807.9bn was 2.6% higher than our estimate on account of low impact of the negative economic variance.
Focus remains on growth with profitability
SBI Life clocked a healthy ~13% growth in FY26, backed by strong growth in the par, annuity, and retail protection products. While the company delivered a strong ~13-14% APE CAGR over the long term, the management expects APE growth of ~14% in FY27. The banca channel is expected to witness 10-11% growth going ahead, while the management believes growth will be driven by the strengthening of the agency channel. To this end, the company has taken multiple initiatives over the last few quarters, including
1) increasing the number of branches,
2) adding new agents
3) improving the productivity of agents – these are likely to drive growth in the agency channel going forward. Further, improvement in the product mix is likely to support margin expansion.
Consistent EV and VNB compounding; re-iterate BUY
To bake in the Q4 developments, we raise our APE estimate by~1% and our VNB margin estimate by ~20bps; this results in ~1-2% increase in VNB over FY27-28E. We introduce FY29 estimates. Despite a decade full of external volatilities (Covid-19, regulatory disruptions, etc), SBIL saw EV CAGR of ~20% over FY16-26 without any capital raise. Given SBIL’s strong brand, distribution strength, and consistent EV compounding, we reiterate BUY with unchanged Mar-27E TP of Rs2,250 implying FY28E P/EV of 2.0x.
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