Q4FY23 Review: SBI Life Insurance: APE growth modest, margins expand further

SBI Life (SBILI) reported Q4FY23 results with 10% YoY growth in APE off an easy base last year, while renewal premium grew at a healthy 10% YoY, on a steady base. SBILI witnessed healthy traction in its Non-Par (incl. annuities), group protection and par segments (+147%/39%/36% YoY), while ULIPs saw 9% YoY decline. SBILI doesn’t have material exposure to high ticket traditional products which could have resulted in relatively modest APE growth in 4Q. Retail protection APE also saw a 3% decline YoY. VNB margin saw a stellar 480bps expansion YoY to 31.6%, on improved business mix. Management guided for 20-25% growth in APE in FY24 with potential margin expansion.

APE growth modest: 

SBILI registered 10% YoY growth in APE, off an easy base last year. In FY23, APE growth was 18% YoY. Non par was still strong at 147% YoY in Q4. Retail protection APE grew 15% QoQ, however, witnessed a decline of 3% YoY, while group protection APE grew 39% YoY and 25% QoQ. Among distribution channels, total APE sourced by the banca channel witnessed strong growth of 20% YoY in FY23 (7% in Q4), while the agency channel saw 16% YoY growth (15% in Q4).

VNB margins strong due to robust selling of Non-par: 

VNB margin expanded by 480bps YoY to 31.6%, while VNB grew 30% YoY. FY23 margins witnessed a YoY 420 bps expansion on the back of shift in product mix towards Non-par, as well as impact of change in operating and economic assumptions. Solvency at 215% remains comfortably high. 

Reiterate BUY: 

Analysts at IIFL Capital Services reiterate SBILI as their top pick. Their TP implies 2.6x 2YF P/EV, offering 20%/24% EV/VNB Cagr over FY23-25. It is currently trading at 2.0x/1.7x FY24/FY25 P/EV, at a 18% discount to HDFCLI but is still delivering top quartile VNB margins and industry leading VNB growth too. Key risk: Open architecture, composite licenses.