Q2FY24 Review: SBI Life Insurance: Strong comeback, still vying for 20% growth

30 Oct 2023 , 02:55 PM

SBI Life (SBILI) reported Q2FY24 results with 33% YoY growth in APE, after a tepid 4% YoY growth in Q1; while renewal premium grew at a healthy 11% YoY. In its Non-par segment (including annuities), SBILI witnessed a decline of 7% YoY off a very strong base last year when it grew 104% YoY, and Par also declined by 4% YoY. ULIP was the key growth driver with 50% YoY growth in Q2. VNB margin saw a 300bps contraction YoY to 28.5%, on weaker business mix towards low-margin ULIPs and higher risk-free rates. They reiterated guidance for ~20% growth in APE in FY24 with range-bound margins. Analysts of IIFL Capital Services fine-tune estimates; their 12-month TP is unchanged at Rs1,800 (38% potential upside). They forecast SBILI to deliver 16%/20% VNB/EV Cagr in FY23-25. The stock trades at 18% discount to HDFCLI, which could converge, given the consistent above-industry growth and superior margins. Analysts of IIFL Capital Services maintain BUY. 

APE growth rebounds off a favourable base: 

SBILI registered 33% YoY growth in APE, off a favourable base last year where APE had marginally declined. Non-par (including annuities) and Par saw 7% and 4% YoY decline respectively on a high base; ULIPs grew 50% YoY due to a shift in mix. Retail protection APE declined 5% YoY and remained tepid for more than a year now. Management expects APE growth momentum to sustain in the next two quarters and hence, maintained their guidance of growing APE by ~20% in FY24. Among distribution channels, banca channel rebounded to 21% YoY; while the agency was also strong at 45% YoY, as bolstering the number of agents materially in FY23 is now leading to higher productivity. 

VNB margins compress on business mix: 

VNB margin contracted by 300bps YoY to 28.5%, resulting in only 20% YoY growth in VNB due to higher proportion of lower-margin ULIP segments, while higher risk freerate 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 fine-tune their estimates and maintain TP, which implies 2.5x 2YF P/EV, offering 20%/16% EV/VNB Cagr over FY23-25. It is currently trading at 2.0x FY25 P/EV, at a 18% discount to HDFCLI; but is still delivering top-quartile VNB growth and margins. Analysts of IIFL Capital Services maintain BUY. Key risk: Open architecture, composite licenses, higher payout to distributors.