Q1FY24 Review: SBI Life Insurance: Soft quarter, still confident of a strong year

26 Jul 2023 , 12:17 PM

SBI Life (SBILI) reported Q1FY24 results with 4% YoY growth in APE off a tough base last year, while renewal premium grew at a strong 28% YoY, on a healthy base. SBILI witnessed decline in its Non-Par (incl. annuities) by 21% YoY, off a very strong base last year when it grew 372% YoY. Other lines of savings grew well with Par at 18% YoY and ULIPs at 17% YoY. At 6% YoY, Retail Protection growth remained tepid. VNB margin saw a 160bps contraction YoY to 28.8%, on weaker business mix and higher riskfree rates. They reiterated guidance for 20-25% growth in APE in FY24 with range-bound margins. Analysts of IIFL Capital Services maintain estimates and 12- month TP of Rs1,750 (35% potential upside); and forecast SBILI to deliver 17%/20% VNB/EV Cagr in FY23-25. Stock trades at 23% discount to HDFCLI, which could converge, given the consistent above-industry growth and superior margins. Analysts of IIFL Capital Services maintain BUY. 

APE growth modest off a tough base: 

SBILI registered 4% YoY growth in APE, off a tough base last year. In FY23, APE growth was 18% YoY. Including annuities, Non Par saw a 21% YoY decline on a significantly high base. Retail Protection APE grew 6% YoY and remains tepid for more than a year now. Management expects growth to pick up in the next 2 quarters and hence, maintained their guidance of growing APE by 20-25% in FY2. Among distribution channels, banca saw a marginal uptick to 9% YoY, but remains subpar; agency surprisingly declined by 2% YoY, despite bolstering the number of agents materially in FY23.

VNB margins compress on business mix: 

VNB margin contracted by 160bps YoY to 28.8%, resulting in a 1% YoY decline in VNB, due to higher proportion of relatively lower-margin Par and ULIP segments. Higher riskfree rate also impacted the same. Management indicated that margins may remain range-bound as they try to maintain an equilibrium between value to customers, distributors and shareholders.

Maintain BUY: 

Analysts of IIFL Capital Services maintain their estimates and TP, which implies 2.5x 2YF P/EV, offering 20%/17% EV/VNB Cagr over FY23-25. It is currently trading at 2.0x FY25 P/EV, at a 23% discount to HDFCLI, but is still delivering top quartile VNB margins and VNB growth too. Analysts of IIFL Capital Services maintain BUY. Key risk: Open architecture, composite licenses, higher payout to distributors.