SBI Life Insurance: Pickup in APE growth ahead; FY24 outlook intact

22 Aug 2023 , 11:36 AM

Recommendation: Buy; Target Price: Rs 1750

 

Analysts of IIFL Capital Services recently met with CFO Mr. Sangramjit Sarangi to get a business update and delve deeper into some of the recent concerns around APE growth, distribution challenges and regulatory risks. Key takeaways: 1) While growth had been relatively muted in H1CY23, it was largely a function of a tougher base and some weakness in distribution. However, they reiterated confidence in growing close to 20% in FY24, on the back of a strong rebound in Q2-Q3. 2) The company expects the SBI channel to fire on all cylinders in H2 and hence, drive growth in APE. Additionally, investments in agency will also start becoming visible. 3) Margins may remain range-bound in FY24, while there should be a smooth uptick in the long term on improving product mix. 4) SBILI is compliant with all the recent regulatory changes (e.g. EoM), and does not have exposure to tax claims (e.g. GST). Hence, SBILI may benefit from market-share gains as some of the Private players struggle to align with the regulations. Analysts of IIFL Capital Services reiterate BUY with a 12-month TP of Rs1,750 — implying 37% potential upside. 

APE growth to rebound in Q2-Q3; ~20% in FY24 doable: 

Despite delivering a muted Q1 off a tough base, management reiterated confidence in delivering ~20% APE growth in FY24; led by pickup in Q2-Q3. Q4 should have a favourable base from last year. Monthly premium numbers will be a key catalyst, as reflected in the strong growth in July. Rebound in ULIPs and steady growth in Non-par should drive APE in FY24. 

Banca to pick up; investments in agency to fructify now: 

Management indicated no material risk from the SBI bank channel, either on APE growth given the short-term focus on CASA, or on commission rates given more headroom for higher commissions after recently introduced EoM regulations. They also suggested that SBI has very high targets on fee income over the next 2-3 years, and that SBILI would be a key contributor to the same. 

SBILI at the right side of regulatory changes: 

Management said that they are on the right side of the recent regulatory and tax-related changes; comfortably below the EoM limits, as prescribed in the new guidelines recently. Hence, they expect business-model tweaks to comply with these changes in other firms to result in share gains for SBILI. They are among the few large insurers who have not received GST notices.